The January World Ag Supply and Demand Estimates Report details South American soybean production and its impact on the market. Mac Marshall, vice president of market intelligence with USB, notes that China will be important to watch keeping the transport of soybeans and price in mind.
“We had an uptick in soybean yield by about seven-tenths of a bushel offset by a slight drop in harvested area, so incremental production is coming up slightly there. A little bit of ho-hum on U.S. production there. The bearishness that we’re seeing is born out of what’s going on in South America. Brazil, of course, has had a lot of trouble this year due to El Nino effects. USDA cut the estimate of Brazilian production last month by two million tons and this month by four million tons to 157 million tons, which is still a substantial crop. But I think it’s worth recognizing that local market observers, both in government and in private sector consultancies in Brazil, have the crop even smaller than that USDA figure. So, it will certainly be something that bears watching over the next couple months.”
Marshall says the drop in Brazil’s soybean production will be picked up by increased production in Argentina.
“Part of that is offset by higher production out of Argentina. They took that crop up by two million tons. Argentina has had a pretty notable rebound from last year’s disastrous crop cycle. So, if you put together Argentina, Brazil, and Paraguay, where we were last month was a production of about 219 million metric tons and taken that down by a net loss of 1.7 million metric tons. Taking into account that slight uptick in U.S. production, I think the market was generally looking for more drastic cuts on the South American side and maybe some downside on U.S. production, so all of this saying, yes, there’s a lot of supply in the market. We’re probably going to see good crop come out of Brazil in total figure but not what was expected at the start of the year, so that’s the big thing to watch.”
China buying soybeans from Brazil shows that America needs to diversify its soy markets overseas.
“Cheap Brazilian beans, particularly as that crop is coming to market, provided some headwinds for the U.S. Certainly, the logistical issues that we’ve had both in the Mississippi earlier this year during harvest time and then certainly the Panama Canal and its subsequent rerouting, that’s been additive for shipping costs, which naturally erodes our price competitiveness relative to Brazil, in some regards. Chinese buyers do like U.S. beans to store, so that’s an important differentiator that is out there in the marketplace. For all of those headwinds that we talked through, our meal exports are going absolutely gangbusters this season. There’s a mixed bag, so some headwinds, but also some green shoots as well.”
Keep up with the latest news from the United Soybean Board at unitedsoybean.org and Wednesday mornings at 10 a.m. Eastern on RFD-TV.