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'Perfect storm' to lift Brazil soy, corn harvests to record highs in 2021-22

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Brazilian farmers are poised to plant 40.0m hectares of soybeans for the first time next season, and a high of 20.0m hectares of corn too, leading to record in production and exports – unless some “red flags” intervene.

 

The US Department of Agriculture’s Brasilia bureau, in its first forecasts for 2021-22 – as actually starts in February next year for soybeans, and March next year for corn – pegged sowings of the oilseed up 1.5m hectares year on year at 40.0m hectares, extending a long-running expansion trend.

 

The growth will be driven by a “perfect storm of factors”, including world soybean demand which bureau contacts believe “will continue to rise exponentially, as the commodity is used in food, feed and fuel.

 

‘New super cycle’

“Market analysts have indicated… that there is an increasing belief in the market that the global soybean sector may be entering a new super cycle for the next several years, with limited stocks and high prices, and despite rising production, demand will outstrip supply.”

 

Meanwhile, the weakness of Brazil’s real - which “most analysts currently forecast… will remain weak over the next two years” – will also support domestic prices, as well as exports, which are getting an additional boost from road and rail improvements.

 

Soybean freight rates “across the country decline 24% year on year in 2020”, reflecting reduced driving time and lower costs of fuel and truck maintenance, the bureau said.

 

With improved seeds and sprays technology allowing farmers “to make impressive gains in yields” too, Brazil will produce a record 141.0m tonnes of soybeans when the harvest comes in early in 2022, with exports seen rising by 2.0m tonnes to an all-time high of 87.0m tonnes.

 

‘Smash its production record’

For corn too, the 2021-22 season is expected to see a series of records tumble, with plantings growing by 500,000 hectares to 20.0m hectares - largely thanks to increased seedings of safrinha crop, planted early in the calendar year on land vacated by the soybean harvest.

 

With the incentive to sowings of domestic corn prices expected “to remain high through at least the end of 2021, considering strong internal and external demand”, Brazil could “easily smash its corn production record”.

 

Output was forecast rising by 9.0m tonnes to 114.0m tonnes, allowing a 3.0m-tonne increase to 40.0m tonnes in exports, despite growing demand from domestic users, such as Brazil’s burgeoning livestock and ethanol industries.

 

“Corn consumption in Brazil has nearly doubled over the last two decades as the country became the world’s largest chicken meat exporter and fourth largest pork exporter,” while corn consumption for ethanol was expected to continue expanding after soaring 90% last year to 6m tonnes.

 

‘Trouble may be brewing’

However, the bureau noted some “red flags” for Brazil’s agriculture industry, including the threat of further truckers’ strikes which have a history of disrupting transport of soybeans from inland states, such as Mato Grosso, in particular to northern ports.

 

“Until there is an alternative way to transport soybeans and grains to the Northern Arc ports, any group – be it truck drivers or protestors espousing another cause – may call nationwide attention simply by blocking traffic.

 

“The potential risk of delivery disruptions has ramifications for landed costs, forward contracts, and on the bottom line for producers.”

 

Furthermore, the bureau noted that Brazil’s farmers, while “well capitalised” thanks to strong crop prices this season, face “financing constraints” as Brazil’s tight public finances curtail aid to agriculture, including through the keynote Plan Safra annual farm bill.

 

“Some smaller farmers may face difficulty securing credit, simply because the support allocated by the federal government via the annual farm bill (Plano Safra) has been depleted.

 

“More trouble may be brewing for the 2021-22 season, as there are already rumblings that the next Plano Safra will have far more limited resources as the government grapples with ballooning deficits and dwindling resources in the aftermath of the pandemic.”

 

Default hangover?

Farmers may face too a hangover from a series of defaults on contracts they have defaulted on this season, when soaring prices prompted some to ditch obligations to supply traders struck earlier at lower values.

 

“The current situation could have ramifications for the 2021-22 season and even beyond.

 

“Back in 2004, after soybean prices soared during the season, Brazilian farmers defaulted on their forward contracts, leading grain merchants to cut back forward purchases the next season, thereby reducing the funding for next season’s planting.”

 

However, the bureau was relaxed over the potential for any curbs on Brazilian exports imposed by the European Union, in protest at deforestation, curtailing soybean shipments.

 

That would likely mean the EU buying from the US instead, while meaning that Brazil “re-direct the 10% of soybeans it currently ships to Europe to other destinations typically serviced by the US supplies”.

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