The 2022/23 soybean crop balance in Brazil and market perspectives

Pedro Schicchi, Oilseed & Grain Analyst at hEDGEpoint, talks about the balance of the 2022/23 soybean crop in Brazil, and the market perspectives.

June 15, 2023

hEDGEpoint Global Markets

The 2022/23 soybean crop has entered the final stretch of operations in Brazil. Total production is estimated to be 155.7 million tons. This number represents an increase of at least 17 million tons produced in the country, compared to the last record season, according to Pedro Schicchi, Market Intelligence Analyst for Grains, Oilseeds, and Livestock at hEDGEpoint.

There’s also been an increase of 6.1% in the area planted with soybeans, totaling an incorporation of 2.54 million hectares. This information is available in the 9th Grain Harvest Survey released by the National Supply Company (Conab).

Schicchi emphasizes how important soybeans are, mainly when used as soybean to provide a source of protein in animal feed, as it’s the crop with the highest protein content per ton. In addition, it’s also essential for the biofuel industry, making Brazil increasingly less dependent on the international fossil fuel market.

In this article, we’ll explain all the details related to the balance of the 2022/23 soybean crop in the country, what the next perspectives are, and why we should protect all stages of this commodity’s production chain.

Export estimates are up

Expectations for the Brazilian soybean crop always dominate the world market. After all, the country is the largest producer of this oilseed on the planet.

In 2022, Schicchi pointed out that there was a drop in Brazilian soybean production: the number reached approximately 125 million tons, after an initial expectation of more than 140 million tons, due to crop failure. “This happened because the amount of planted area grew, but productivity dropped,” he explained. Even so, the soy complex reached record revenues: US$61.3 billion, corresponding to 38% of agribusiness exports, according to data from Cepea-Esalq at USP (the Center for Advanced Studies in Applied Economics).

For the 2022/23 soybean harvest, the survey carried out by Conab points to export volume estimates of 95.64 million tons. “Until the end of May, Brazil exported 49 million tons, which was the maximum accumulated until this month. The market hints at up to 96 million tons exported in 2023, with 53 million tons destined for domestic demand. In 2021, the last record was registered, with exports of 86 million tons for the year, and 46.4 million tons until the end of May,” Schicchi affirmed.

However, the hEDGEpoint specialist stresses that there’s some concern in relation to the global scenario of soybean demand, as it’s lower than the supply. What’s the consequence? The market is under pressure and features low soybean prices. By the end of the year, hEDGEpoint’s analysis is that Brazil will only export 93 million tons, a number below market expectations, which predict 96 million tons. He explains:

“The meat and biofuel industries have increased Brazil’s domestic demand, with biodiesel in the spotlight. In terms of exports, we’re talking about growth of almost 7 million tons this year, when compared to 2021. But even so, this increase in demand isn’t enough to overcome the increase in production.”

Expectations for soybean oil exports rose to 2.6 million tons, a high that was motivated by the product’s greater sales to foreign markets in the first quarter of 2023, with an increase of 42.74% compared to the same period last year. This increase has been caused by the failure of Argentina’s soybean crop, hampered by a historic drought.

Climatic factors: Learn about the impacts.

In the summer of 2023, the La Niña climate phenomenon has already affected the beginning of the soybean harvest, mainly in the Brazilian states of Rio Grande do Sul, Paraná, Santa Catarina, and Mato Grosso do Sul.

However, it was in Rio Grande do Sul specifically that the problems continued throughout the season. With hot weather and no rain there, grains sown around October and November 2022, had difficulty growing and maturing by harvest time between January and April, with substantial damages and losses.

However, in the final months of the soybean harvest, the opposite occurred. Excessive rains were a cause for concern. In Rio Grande do Sul, there were delays and chaffing due to abundant rainfall, which also brought consequences to export performance, creating a context of uncertainty. Despite this, Brazil’s Midwest and Northeast regions made up for these losses, while maintaining high production estimates.

Information from Emater-RS/Ascar released on May 26 indicated that the soybean harvest reached 97% of the cultivated area in Rio Grande do Sul. The reduced occurrence of rain in the second half of May allowed for advances, but the prolonged presence of both dew and fog resulted in low operational performance. Many hours of work were delayed due to adverse conditions, in addition to producing grain with a high moisture content.

In the U.S., the opposite phenomenon was observed: production is at risk due to the lack of rain. “When it rains very little, productivity loss begins to occur in the crop’s development. If the rain’s very heavy at harvest time or before planting, there will be delays, as it’s not possible to enter the field with machines. Soybean stays much longer than it should in the field, and thus quality is lost due to excessive rain,” Schicchi clarified.

The temperature also has an impact. Cold temperatures can compromise the germination and emergence of the plant. Temperatures above 40°C also have a detrimental effect on growth rates, causing damage to flowering.

“If the temperature is much higher than normal, the plant starts to lose more water. If water availability isn’t enough, the grain becomes smaller and loses productivity. In Brazil, we usually don’t experience temperatures that make crop growth not feasible. This typically occurs at temperatures below 10°C, with significant productivity losses,” explained Schicchi.

What are the future perspectives?

In a recent USDA report, Brazil should remain the leader in the world supply of soybeans for the 2023/24 harvest, with 163 million tons produced, and exports that could reach up to 96.5 million.

Regarding the world soybean supply for the next cycle, the USDA forecasts 410.59 million tons. The North American oilseed crop started with high expectations at 122.74 million tons, but the current drought could reduce this number if it persists through August. Argentina should return to normal levels, with an average of 48 million tons.

Schicchi highlights the main challenges for the next cycle: “Soybean prices are falling, but so are input prices. The challenge is to understand to what extent the producer will maintain growth area in the next harvest, in addition to the need to balance supply and demand, while always checking exchange rate issues,” he says.

It is also essential to monitor the evolution of El Niño and its consequences for the 2023/24 harvest. In an update released on June 8, NOAA (Oceanic and Atmospheric Administration) stated that El Niño is back. With the warming of the waters of the Pacific, the North American agency foresees the permanence of the phenomenon during the winter in the Northern Hemisphere, that is, during the summer in Brazil. The probability of becoming a strong event is at 56%. The chances of at least one moderate event are around 84%, according to the publication.

In South America, El Niño tends to bring heat to most of Brazil and above average rainfall in the south of the country. The event is usually positive for soybeans. In the U.S., El Niño tends to be weaker during the summer, with only a slight impact on productivity.

hEDGEpoint: Protection for the soybean production chain

Bad weather, accompanied by unpredictable political and economic changes, are just some of the many factors that make the soybean market volatile. It’s vital to have a plan that offers more predictability and security for your business in the future.

hEDGEpoint has the best hedging products to manage risks in the global commodity chain, as they operate as a kind of insurance against price fluctuations. We unite the knowledge of specialists with market intelligence tools to provide you the best experience in future operations.

Talk to a hEDGEpoint specialist today to find out more!

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