Grain Report - Brazilian crop prospects improve but harvest delayed…

By Peter McMeekin

The rains have arrived across much of Brazil's row cropping regions with the weather pattern now resembling a more typical summer rainy season. The increased precipitation has come just as the majority of the country’s soybean crop is setting and filling pods, putting Brazilian farmers on track to harvest a record soybean crop, and easing concerns about South American soybean supplies.

A recent poll of thirteen leading market analysts pegged the Brazilian soybean crop at a 132.2MMT, up from the December forecast of 131.8MMT, and eclipsing the previous record of 126MMT produced in 2020. Yields in the top producing state of Mato Grosso are expected to be lower than last year, but an improved outlook in several other states is expected to compensate for the losses. The current USDA forecast is on the high side at 133MMT.

While there are still areas in moisture deficit, the conditions are generally favourable in the central and northern parts of the country for the remaining crop. Some areas have abandoned and replanted to cotton, but any paddocks not sprayed out by now will go through to harvest.

Extremely heavy rain and flooding in the southern states of Parana and Rio Grande do Sul are raising concerns, and there is more rain on the forecast. Some places have received more than 500 millimetres in the last 20 days, and some farmers have made up to five fungicide applications to control disease outbreaks. This will potentially lead to production downgrades and quality issues across an area that produces about a third of the country’s soybean output.

While the recent rains are certainly welcome and will help finish the crop, it further delays the soybean harvest. This season's crop was planted late in many regions following an extremely dry start to the sowing season and had already delayed the commencement of harvest by around two weeks. The poor planting conditions and staggered germination have also led to varying levels of crop maturity within paddocks making harvest difficult.

Harvest is underway in Mato Grosso, but it is not at full pace as yet. As of late last week, estimates put the state’s harvest progress at just 5 per cent versus 27 per cent at the same time last year. The rain in the south is expected to delay the commencement of harvest in those states by at least two weeks.

With more rain on the forecast, the delays are expected to continue into February, raising concerns over export flows. Local analysts suggest that no more than 5 million metric tonne (MMT) was harvested by the end of January, less than half the stocks available for export at the same time in 2020. And the pace of harvest is not expected to normalise until late February or even early March.

As a result, the vessel line-up to load soybeans out of Brazilian ports has reportedly risen to almost 9MMT. This comes in a season where prices have been so attractive for the Brazilian farmers that they have forward sold around 60 per cent of their soybean crop ahead of harvest, 20 percentage points above the historical average for the period.

Maybe four vessels finished loading and sailed in January versus thirteen in 2020. Exporters are concerned that the delays will now affect February shipments which typically total 5-6MMT. The sluggish start to harvest, and competing demand from domestic crushers, means that actual February shipments to China may fall short by as much as 2-3MMT. And there is already 1MMT that didn’t get shipped in January that will be pushed into February.

Whilst the demand will probably be recouped at the end of the Brazilian shipping season, the Chinese continue to buy US beans for February and March shipment due to delays. Further interruptions may push another round of bean sales to the US to make up for Brazil's nearby export shortfall.

This only exacerbates the supply problems facing the US this summer. The bottom line is: the US is in real danger of running out of beans at the current sales pace and in all likelihood, will require imports to bridge the supply gap to their new crop. There is already talk in the trade that imports of Brazilian soybeans for June are getting very close to working at current values. An exciting space to watch!

It wouldn't be a typical summer crop harvest in Brazil without the threat of a trucker’s strike. Brazil's truckers’ federation, which has 800,000 members, is still calling for an all-out strike from Monday of this week over the rising cost of diesel. Higher global oil prices, coupled with Brazil's weakening currency, have driven up local diesel prices. However, the likelihood of it proceeding has decreased as a split emerged last week over the merits of the action.

The late soybean harvest in Brazil becomes a massive issue for global corn supply. Brazil’s safrinha corn crop is planted after the soybeans have been harvested and represents about 75% of its output. With planting delayed by as much as a month, it means that some corn will be planted well outside of the ideal seeding window. This increases production risk as it pushes the crop further into the drier autumn months of April and May, and delays export onset.

One big difference this year is the price being paid to the Brazilian farmer. The weakening currency has pushed prices higher, ensuring the crop gets planted as they can still make a profit even if yields drop significantly due to the later seeding.

Corn has just had the longest run of monthly gains in more than a decade as Brazil's planting issues, coupled with a Chinese buying spree, have further tightened global supply. Last week alone saw the Chinese purchase around 6MMT of US corn and further sales are anticipated. Delays to the availability of Brazilian corn and political interference to limit exports from Ukraine, and possibly Argentina, pushes even more demand to the US.

Surely February will be the month of reckoning for the USDA who have been well behind the eight ball on both their estimate for total Chinese corn imports (17.5MMT) and total US corn exports for the 2020/21 marketing year. Before last week’s buying binge, the US had already sold 11.8MMT of corn to China with a further 7.9MMT sold to the sister state, conveniently referred to as “unknown”.

The sustained increase in corn values should, and needs, to be rationing global demand, but last week’s market action suggests otherwise. US corn is currently the cheapest feed grain in the world, and the delay to planting in Brazil only extends its supply window by another month. Corn should now become the rally leader, or at least gain on beans, in the fight to ration global demand and buy area in the next northern hemisphere planting program.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.