One of the best Mark Twain quotes is "buy land - they’re not making it anymore".
Brazilian soybeans farmers are taking Twain to heart - they are all set to expand their soy fields by 6% in the 2020-21 marketing year, according to local consultancies Arc Mercosul and AgRural.
If they are right this means an extra 865,000 acres planted to soybeans in the north and north-east of Brazil, regions dominated by the Amazon rainforest and the Cerrado savannah.
Elsewhere, in the centre-west, Mato Grosso, the biggest soybean producing state, is expected to add more than 1m acres during 2020-21. Brazil’s soybean harvest in 2021, planting of which is due to start this month in the centre-west, is widely expected to be in excess of 130m tonnes.
Can demand sustain?
The apparently insatiable demand growth for soybeans is largely driven by China.
Soybean demand there has surged from nearly 75m tonnes a year in 2012 to more than 122m tonnes in 2017. In the last two decades global soybean production has doubled and the global soybean export trade has gone up 10 times.
China is currently produces soybeans itself equivalent to just 10% of its annual consumption - for the rest it is dependent on imports, largely from Brazil and the US and to a lesser extent from Argentina and other south American origins.
Domestically-produced soybeans tend to have lower oil yields than the genetically modified imported soybeans (which account for more than 90% of its imports) and this directly affects profitability of soy crushing. For the 2020-21 marketing year the USDA estimates that China will import a record 99m tonnes.
China’s rapid economic growth - doubling its GDP between 2004 and 2011 - has underpinned its growing consumer wealth and consumer’s ability to eat more meat, pork being the preferred choice.
It’s not just Brazilian farmers who expect Chinese soybean demand to keep on growing.
Cargill, the largest privately owned US company, which specialises in agricommodity trading and processiing, has just bought a soy processing plant in eastern China, consolidating its position as one of the largest foreign soy processors in the country.
Strong futures’ prices
Chinese soybean imports this year have underpinned the rally in soybean futures’ prices, which in the US have risen 15% since 12 August and breached the $10 per bushel mark.
US farmers are following their Brazilian peers and are likely to favour soybean plantings in spring 2021 - early forecasts suggest that US farmers wil plant almost 88m acres to soybeans, 5% higher year-on-year.
In July 2018, the Chinese government imposed a retaliatory 25% tariff on US goods, including soybeans, which pushed the price of US soybeans about $50 per tonne higher than Brazilian soybeans. The trade deal signed between the US and China in January removed that tariff but tensions between the two countries still run high.
Meanwhile Brazilian exporters have beneffited this year from a weaker currency- $1 bought almost R$6 in mid-May but the real has rebounded more than 20% since then. They have been getting more dollars per tonne for their beans than last year.
There are many variables that will influence China’s soybean demand over the next year - its pig herd recovery from African swine fever (growing pigs like soymeal); its GDP growth and how rich Chinese consumers feel; whether the trade war truce between China and the US will persist or perish; and not least international currency fluctuations.
But the bottom line is that, right now, its demand looks like continuing to grow at an annual 3% - and that has to be positive for prices.