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The 2021/22 Brazil grain harvest: Current context and possible directions

The 2022/23 grain harvest have everything to set a record in Brazil.

What are the challenges and opportunities in this market?

December 14, 2022

hEDGEpoint Global Markets

Nowadays, Brazil is one of the biggest grain producers in the world. It’s estimated that the total volume of global grain production exceeds 3 billion tons, and only four main countries – with Brazil in fourth place – are responsible for more than half of this amount.

The country that’s currently in first place in the ranking as the world’s largest producer of grains, and the largest consumer, is China. Almost all its production – more than 620 million tons per year – are absorbed by internal demand. Its population is 1.4 billion.

In China, the most produced grain is corn, which represents 23.4% of the total. Still, they’re also near the top in terms of the world’s largest rice and bean production – 28% and 40% of global volume, respectively.

After China, the second and third largest grain producers are the United States – which is also the country that exports the most grain overall to the entire world – and India, accounting for 8.6% of world volume, with 264 million tons.

What’s Brazil’s importance in grain production?

Brazilian agriculture is responsible for the fourth position among the largest grain producers in the world, with 239 million tons, equivalent to 7.8% of world production. It’s the second largest global exporter, behind only the United States.

Today, the country is the largest soy producer in the world, a title achieved in 2019/20 when we produced 124.8 million tons and surpassed the U.S. Of this amount, 84 million were exported, which also made us the largest exporter of this commodity.

When it comes to soybeans, the U.S. is still the biggest export competitor, mainly to supply China’s demand. The Asian country consumes about 116 million tons per year but produces only 15 million.

In addition to soy, Brazilian agriculture is also responsible for 116 million tons of corn, accounts for the fourth largest production of brown beans, and is in ninth place in rice production.

What’s the current situation in the grain market?

The 2021/2022 grain harvest reached record numbers in Brazil. It’s estimated that total production reached 271.2 million tons, which represents an increase of 14.5 million tons compared to the previous cycle.

Soy, the main commodity cultivated nationally, faced many climatic adversities: mainly low rainfall combined with high temperatures in states of great importance for this crop, such as Rio Grande do Sul, Mato Grosso do Sul, Paraná, and Santa Catarina. As a result, the drop recorded in some of these state regions exceeded 50%. The harvest was estimated at 125.6 million, a reduction of approximately 10% compared to the 2020/21 harvest.

In the case of corn, there was an increase of 30% compared to the previous cycle. Beans also suffered losses, but the harvest will be enough to supply the country. Rice yielded a harvest of 10.8 tons, suffering a slight decrease in relation to the previous harvest.

What’s the expectation for the 2022/23 grain harvest?

Projections point to a positive scenario, and there are great expectations regarding the 2022/23 harvests, especially regarding the soybean market. One of the factors that contributes to a possible new record is already sure enough to offer good prospects: the area designated for this commodity’s production will be a record.

The area reserved for soy planting increased by 3.5% this year, more than the increase in total area planted with grains in general–which grew by 2.5%. This percentage corresponds to an increase of almost 2 million hectares.

Thus, there’s great optimism in relation to the quantity of grain produced. However, in commodity markets, it’s necessary to always be aware of opportunities, and what’s happening in global markets, to make the right bets and avoid damage.

What are the key points for grain producers to pay attention to?

Grain producers need to be aware of the following equation: the more product there is in the market, the lower prices will be. Earnings may be even higher due to greater production, but not necessarily a good profit margin.

China, our biggest soy importer, has a growing demand for soybean to feed livestock. Thus, exports can continue at a good pace, mainly because the U.S. is facing a drought on the Mississippi River which has hampered production and mainly the transportation of soybeans. It’s the main outlet for exports, and this has increased the price.

It’s always necessary to be well informed about what’s happening in the world’s agricultural markets, and the entire commodity chain, in order to be able to make the best choices and expose yourself to less risk.

How can grain producers protect themselves from price fluctuations in commodity markets?

To be prepared for price variations that happen so frequently in agricultural markets, it’s vital to rigorously plan, and if possible, rely on a good market intelligence and risk management partner.

The hedging strategies available today for the entire range of agro markets are great solutions to avoid unpleasant surprises in the financial planning of those who work in the commodity chain. They help avoid much unwanted losses.

hEDGEpoint uses this mechanism, which operates as a kind of insurance against price variations in the market, reducing possible transaction risks.

The services we provide combine the knowledge of our specialists, who understand the field and its many variables, with risk management solutions through technological tools and customized consulting, to always offer the best experience in futures operations.

We are globally present, always prepared to serve you at any time, in any place. Get in touch with one of our specialists to learn more about how to use our solutions to strengthen your business.

Talk to a hEDGEpoint specialist.

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