Global Agriculture

Viewpoint: Soy prices may fall on Brazil’s record crop

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22 December 2022, Brazil: Brazil is set to produce a record soybean crop in 2023 because of larger acreage and more favorable weather, which may pull down prices and port differentials as Chinese demand remains uncertain.

The soybean crop, which begins harvesting more vigorously in January, may reach 153.5mn t in the 2022-23 season, according to national supply company Conab, above the 125.5mn t in the previous season. Outlooks are more optimistic this year because soybean planting was completed within the ideal window, weather was more favorable for crops and the planted area increased to 43.4mn hectares (ha) from 41.5mn ha in the 2021-22 crop. But this projection may change in the coming weeks if there is a lack of rain in southern Brazil and yield losses occur, as is happening in Argentina.

The expected record soybean production is the main reason market participants are projecting port differentials at lower levels in 2023, as international demand for Brazilian soybeans has not grown at the same pace as production. China imported 52.5mn t of Brazilian soybeans from January-November, 13pc less than the 60.5mn t shipped a year earlier, according to ministry of economy data.

Under this scenario, the Paranagua soybean paper market, which trades at a differential to the Chicago Board of Trade (CBOT), is set to have greater liquidity next year. But record premiums seen in 2022 may flip to discounts to the CBOT in 2023, according to Guilherme Britzki, a senior soybean broker at McDonald Pelz. This can occur mainly after the harvest is finished and at the peak of Brazilian soy export season, in March-May. This outlook takes into account a projection that the imports of Brazilian soybeans into China will remain stable in 2023 and will not return to 2021 levels.

Still, total soybean exports may rise to 90mn t next year, from 78mn t in 2022, with greater participation of European and South Korean buyers, as lower premiums will make the Brazilian product more competitive in those markets.

Other market participants believe that the Chinese hog industry’s improved profitability will boost soybean imports again, which did not occur throughout 2022. China’s total soybean imports, mainly used as feed for hogs, could climb to 95mn-100mn t in 2023 from an estimated 91mn t in 2022, which was down from about 99mn t in 2021.

China has been the destination for around 68pc of Brazilian soybean exports, a share that will either be matched or topped in 2023 to reach at least 60mn t, MD Commodities’ managing partner Ismael Menezes said. Soybean prices tend to be slightly lower in the CBOT, so premiums may not decrease as much as they usually do to offset losses in Chicago. But if prices in CBOT remain sustained, there is indeed a risk of discounts starting in March in Brazil, according to Menezes.

2022 premiums soar as crop fails

Premiums in the Paranagua paper market reached record highs, especially in the first half of 2022, when the crop in southern Brazil was damaged by dry weather.

The most liquid maturities, between March-May, exceeded the 200¢/bu premium over the CBOT, especially in March, under the strong influence of crop yield losses in Parana state. Argus data shows that the midpoint for April/May reached 222¢/bu on 17 March. In the previous year the peak April/May premium was 62.5¢/bu in April. The highest price among reported deals was a transaction for September closed at 278¢/bu on 7 July. In 2021, the record had been a deal in September for the same month, but at a premium of 240¢/bu over the November CBOT contract.

Trades reported to the paper market between January and the second week of December totaled about 6mn t, below the 6.9mn t registered in the same period of 2021. Liquidity was reduced not only by the smaller soybean output, but also by the absence of trading companies from Russia and Ukraine, and mainly by the slow pace of crop sales by Brazilian farmers, Agrinvest Commodities’ soybean broker Diego Miranda said. Soybean sales in the central-west should be at 70pc of the estimated 2022-23 area by this time of year, but are below 50pc, market participants say.

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(For Latest Agriculture News & Updates, follow Krishak Jagat on Google News)

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