Brazil’s Soybean Production - Sub 120 MMT?

Soybean futures have been rallying for weeks as weather concerns in Brazil have yet to ease. In fact, concerns have heightened with harvest progress suggesting that even central states could be facing yield cuts. Rewind a couple of months ago and Brazil was set to have a record bean harvest by far with Mato Grosso the leader. Now, too much moisture for that state and a lack of moisture for southern states has us leaning towards a production total closer to 118 MMT.  

To put that into perspective, in 2018/19 (planted in late 2018, harvested in early 2019), Brazil harvested 119.7 MMT of soybeans. So we have to rewind a few years to get a crop that is sub-120 MMT. A couple of months ago, Conab was expecting a record crop at just under 143 MMT. The agency most recently downgraded its production forecast to 125.5 MMT. But our bias is that final production may be even lighter.  

What is driving our outlook lower?

A couple of things are pushing us to cut production even more. First, harvest progress in Mato Grosso is suggesting that its crop is not as healthy as Conab is projecting. Contacts in Brazil are stating that high humidity and too much moisture caused plant damage, particularly on the lower pods. Moving further south into Parana, and plant growth is limited, many fields are yellow and stunted, and some fields are simply dried out - as shown in the following pictures.

Source: FBN - Parana, Brazil, February 2022

Source: FBN - Parana, Brazil, February 2022

We will dig more into balance sheet implications in forthcoming analysis, but a crop in the 120 MMT range suggests Brazil’s exports could be closer to 75-80 MMT versus USDA’s current forecast at 90.5 MMT. And that has positive implications for US export prospects into 2022/23.  In fact, China reportedly has canceled several cargoes of Brazil beans - these cancellations reportedly are tied to weakening crush margins in China but also higher prices in Brazil.     

What it means for the farmer

Old-crop futures are likely to gain in the coming months, which is a key reason as to why we lifted the short side of the call option earlier this week. US acreage prospects for 2022 may keep the upside for new-crop values limited for now, but at this juncture, the odds of China having to source more beans from locations outside Brazil are high.

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