Weather in South America may play the wild card in 2021/22 MY and bring more volatility to the market - Anderson Galvao

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APK-Inform

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South America is one of the world's major soybean producing regions. Brazil and Argentina from year to year ship high volumes of soybeans and its byproducts what making them leaders in the global market. APK-Inform Agency talked to Anderson Galvao, Founder and head of CELERES, about current situation of agricultural market in Brazil and Argentina and how these two countries will compete in 2021/22 crop season on world market.

- Looking at 2020/21 crop season what main features you can name for South America region in soybean production? What perspectives for new 2021/22 MY?

- The soy area of last season planted 60 million hectors in South America region. Only in Brazil this year will increase its production by 2.1 million hectors and this is a consequence of huge profits Brazilian farmers are making with soybean production and also of corn. The profitability of soybeans for farmers in Brazilian now all time historical and in that season give a lot of profits to Brazilian farmers who are facing with a lot of so soybean production. Local competitiveness keeps pushing Brazilian growers to expand their planted area and the country ability to export soybeans worldwide. On the other hand, in Argentina farmers thanks to worse economic and political situation reduce the soybean planting area in half million hectors. While in Paraguay and Uruguay increase by only 0.3 ml ha and 0.2 ml ha accordingly. So, general soybean planting area in South America may increase to 62.5 ml ha in 2021/22 MY. For production prospective increasing of planted area represent its up almost 10 million tons mainly coming from Brazilian fields (up to 7.2 ml t in a year) – to 208 ml t.

- What factors will influence the soybean market in South America in 2021/22 MY?

- Especially for soybeans it's important to know that although going to be a really tough year according to low level of rain fall in Brazil and also in Paraguay and Argentina. In fact, the soybean growers are lucky to be able to have a high soybean production in last season but for 2021/22 MY we still somehow worry about perspective La-Nina pattern. This circumstance can cause a dryer weather for Argentina, Paraguay and Brazil (especially in the south where is typically for a dryer condition). Which means a low level of original worldwide basis and this summer season South America bring more volatility to the market. So if we look at the next season first conditions that is going to have an effect is weather and La-Nina circumstances what is typically bad news for producers in Argentina and Southern Brazil, and so far we see the water level are very low which means that perspective of stronger La-Nina quiet worried for Brazilian economy but also for that growers. Weather will dominate the headlines in South America in the coming months and may play the wild card again in 2021/22 MY.

The second point which is still placed mainly in Brazil is the exchange rate. The local currency Brazilian Real have a tremendous loss in the maybe a year and a half and most of the profit Brazilian farmers are making right now is fully linked to the weaker national currency. Weaker currencies in South America boost local competitiveness which means that any changes in perspective such as increase Brazilian inflation (the same way the Brazilian Central Bank also pushing primary rate in order to upset the influence) and in normal political condition we should also be worried about stronger Real in 6 months or so. It might have limited the profitability for Brazilian farmers who grouse not only soybeans but overall.

- Brazilian farmers from season to season harvested a high soybean crop. In your opinion, what leads to this?

- In this particular season the gross margin of soybean production in Brazil was higher than the gross level four years ago, which means that Brazilian farmers are really investing more in technology. Juts as an example due to the weather issues Brazilian soybean farmers in this season gross 3.6 tones per hectors – the highest in the world country level bases, and in the central part of the country the harvest is 6.3 tones per hectors for soybeans. This is very positive side were farmers make money from the investing on weather technology and in technology for higher yields. Of course, it means farmers will plant more in new season.

- Is there something what can limit the ability of Brazil growers to export more soybeans?

- The main thing what limiting Brazil to export more soybeans or even to produce more corn is significant supply constraints. Right now if we go to tractor or combine dealer or fertilize and supplier in Brazil there is no amiability of such equips in the market. They are really oversold. Even so regular use and normal expansion we can see mainly in soybeans in Brazil increasing its market share not only in Europe but in Asia. Since 2003 Brazil has a protocol with Chinese government to export soybeans including GM-soybeans and from that time were a huge increase of soybean imports from Brazil. So China represents now about 80% of Brazil soybeans export and last 20% all over the world. But constrain in the global supply chain of Agricultural inputs limits the expansion in 2021/22 MY. Although in postcovid time a lot of changes for logistics especially for container transportation. Brazilian agricultural sector faces huge problems to have proper supply containers to import chemicals and other plant nutrition products, but also some problems in exporting products to the Continent. Even though when we are looking perspective for soybean export we see South America countries should increase from 58% in 2020/21 MY to like 63% in new season of a total soybean export in the world and of course Brazilian represent the majority of soybean export. Although we don't see any major issues on booking cargo and for a logistical perspective let's say almost normal conditions to Brazilian exporters to ships soybeans to the international market.

- Tell us shortly about main changes on soy meal market in South America during last season.

- For the soy meal conditions, we have a different situation. Argentina as the leader exporter of soy meal in the world due to economic and political mood makes difficulties for local players and users to incise needed of production. Under a permanent political/economic turmoil, Argentina faces a limited capacity to increase soy meal exports, while Brazil can only tap marginally on additional global demand. To that point due to a several droughts we can see in South America this year the water level in most ports on Paraguay river is quite low which means that the cargo no matter with soybean or soy meal are leaving maybe 20-25% less capacity than the normal. And in new season the export of local soybeans but mostly soy meal and oil from Argentina will still face up this problem thanks to lower level of water in Paraguay river. In that sense we can expect that Brazil will feel the gap from Argentina. But boost the main animal protein production in Brazil is consuming the majority of soybean consumption which gives very few amount available to be re-export to international markets. Still, Argentina is a major player on soy oil global market followed by Brazil in South America.

- How biodiesel mandate in Brazil influence the soy market in the country?

- The current mandates for biodiesel in the Brazilian diesel oil is really try not to use the all soy soil in the country. Soy oil is used for 80% of a total bio diesel produce in Brazil which means even for domestic consumption there are a short volume of oil in the country, which less low so close to be exported to the global markets. Local biodiesel mandate curbs Brazil’s surplus of soy oil leaving the global market very dependent on Argentinean exports, while the country faces huge uncertainties.

Interviewed by Anna Lysenko, APK-Inform Agency

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