The soybean harvest for the 2023/24 crop has already begun in Brazil. The world commodities market is closely following this moment, after all, the country is the largest producer of this raw material on the planet.

However, estimates for a record season are lower than expected at the start of the cycle.  Climatic problems, accentuated by El Niño, help explain the drop in productivity.

However, with the recovery of the soybean crop in Argentina and good prospects for Paraguay and Uruguay, the trend is still towards excellent soybean production in South America. To discuss the soybean crop scenario and its evolution in this region, we invited hEDGEpoint’s professionals:

• Pedro Schicchi, Grains and Oilseeds Market Intelligence Analyst.
• Sol Arcidiácono, Head of Grains for the Latin American.

Read on and check it out!

Brazil: dry weather affects the country’s soybean harvest

In Brazil, soybeans are planted around October and November. Harvesting begins in late January and early February. The reproductive stages of grain development are the most critical for producers and occur between December and January.

During this period, the weather conditions deserve special attention, according to Pedro Schicchi:

“If there is a shortage of rain at this time, for example, there are impacts on productivity. In cases of extreme heat, it can affect evaporation, which requires more water for the oilseeds,” he explains.

For the 23/24 soybean harvest, dry weather persists in important producing states. Initial estimates pointed to a production of up to 160 million tons of soybeans. However, due to the weather conditions, these forecasts have been changed.

“We are at a decisive moment when the market is trying to understand what might happen. Given the current conditions, production is expected to be between 145 million tons of soybeans this season,” Schicchi said.

In historical terms, it’s still a good harvest for Brazil. If these estimates are confirmed, the country will produce around 5 million tons less than last season.

• Read more: The influence of climatic phenomena on the commodities market

Mato Grosso with falling productivity

According to the Mato Grosso Institute of Agricultural Economics (Imea/Famato), the grain harvest should reach 39 million tons in the state, which is the leader in soybean production. This volume is 3.1 million tons less than expected in December and 13.9% less than the previous cycle.

Imea indicates that the area sown remained stable. However, the average yield of the crop will fall in the region to around 53.59 bags per hectare. In the last cycle, productivity in the state was 62.31 bags per hectare, a record in the historical series.

Argentine recovery and good prospects for Uruguay and Paraguay

The Argentine soybean calendar is different from Brazil’s: the harvest takes place a few months later, between April and May. In the last cycle, the Argentine soybean crop suffered a very significant deficit, with a production of around 25 million tons.

This was almost half of what was normally produced. Due to La Niña, which caused drought in important producing areas, it was even necessary to import soy from Brazil.

However, the recent rains in Argentina’s agricultural region have increased the prospects of a good harvest, as the grain is growing in ideal and suitable humidity conditions. As a result, the soybean harvest is expected to reach 50 million tons in the country. Sol Arcidiácono also highlights the recovery of the crushing industry:

“With such a significant recovery in the volume produced in Argentina, it will once again occupy first place as an exporter of soybean meal and oil. In this way, it consolidates itself as a very competitive source,” he points out.

Good production is also expected in Paraguay and Uruguay: 10.3 million and 2.9 million tons, respectively.

“So South America as a whole will produce a record for the region, even if Brazil doesn’t reach the levels initially expected,” explains Schicchi.

What are the dynamics of the soybean crop trade flow in South America?

The world soybean market is likely to experience price volatility. The US supply will be smaller than last year, but South America will make up for this loss. The US Department of Agriculture (USDA) estimates that Argentina, Brazil, and Paraguay will account for 54% of world soybean production.

• Read also: How does volatility impact the commodities market?

Chances are that Brazil will reduce its soybean export potential due to weather-related problems. Argentina, on the other hand, should regain its leadership in world soybean meal exports, as well as its soybean oil shipments.

“In this scenario, one of the possible risks is inflationary pressure on prices. After all, there will be a greater supply in South America than in the previous cycle,” explains Schicchi.

Recovery in the crushing industry

As far as the crushing industry is concerned, Arcidiácono points out that this year there will be a notable recovery in the commercial dynamics of by-products. Especially on the international market:

“Argentina can increase its share of the soybean oil market, even reaching destinations that have traditionally been self-sufficient, such as the United States. I also believe it has a renewed opportunity with Brazil,” he explains.

According to the Head of Grains at hEDGEpoint’s Latin American Division, domestic consumption of vegetable oils in the two major soybean producers, the United States and Brazil, is very high. This is due to the growing momentum of these countries which, with large populations and ever-increasing compulsory blends, are challenging self-sufficiency:

“Meanwhile, Argentina is still struggling to get its biofuels law in order and has a large exportable surplus. We’re already seeing Argentine soybean oil reaching the United States and we’ve already seen exports to Brazil in other tight years,” he points out.

The crushing margin is no longer as interesting for the Brazilian or North American sector as it was last year when Argentina wasn’t competitive:

“Last year’s cycle was an ideal one, with cheap soybeans and expensive by-products, for the crushing sector in Brazil,” Arcidiácono concludes.

Understand the dynamics of marketing

Commercialization refers to the amount of production that has been sold. Schicchi points to a trend in recent years: Brazilian and Argentine producers are selling less and less soybeans before harvest.

This is due to the prospect of higher prices, a reality that was confirmed when there was a bad harvest in Argentina and therefore less supply available. In the case of Argentine producers, they have slowed down their sales in recent years for reasons such as currency problems.

Therefore, they retain the product as a way of preserving the amount of dollars available. This year, however, with the changes in the exchange rate, Argentine producers may be more willing to sell their products for the US dollar.

So when you get to harvest with little soy sold, you have to sell it to pay off debts, for example. In other words: producers have to sell more soy than usual, all at the same time, which increases competition and the available supply.

“This situation creates pressure on prices because producers didn’t sell before the harvest, as they believed the price would rise. But with a lot of soybeans on offer, the price falls,” says hEDGEpoint’s Grains and Oilseeds Market Intelligence Analyst.

Read also:

• Soybean market: how do futures contracts work?

Understand the role of risk management in the soybean market

As you’ve seen, the soybean market fluctuates in terms of supply and demand. As you may have seen, the soybean market fluctuates according to supply and demand. In the 22/23 cycle, Argentina had a poor harvest. Brazil, on the other hand, had a record production.

For the 23/24 cycle, the outlook points to a recovery in Argentina and lower-than-expected production in Brazil. However, there will be more supply available in South American-producing countries due to good production in general. This will put pressure on prices.

In this sense, risk management is essential to protect against price fluctuations in this market. With effective hedging instruments, producers can use mechanisms such as agricultural derivatives.

hEDGEpoint hedges commodities with a global presence and a local eye for the particularities of each sector. We offer more than 450 customized financial products for farmers, cooperatives, industries, and commodity traders around the world.

Contact us and find out how we can turn risks into opportunities.