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Uncertainty clouds Brazil’s new soybean crop

Summary:
As soon as rains appear in the sky, soybean planting season will kick off in Brazil. However, the start of the 2017-18 season in the world’s largest soybean exporter — and probably the entire season — is set to be bumpy and full of uncertainties. As of September 16, farmers were authorized to start sowing in Mato Grosso and Parana states, the two main producers in the country. Weather forecasters warn, though, that rains have not arrived yet and may not arrive anytime soon. Cooler-than-average waters in the Pacific Ocean — but not cool enough to characterize a La Niña phenomenon — will make rains irregular during the first fours weeks of the planting period, until mid October. Only on the second half of October the precipitation will normalize and planting will go on properly, according to

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As soon as rains appear in the sky, soybean planting season will kick off in Brazil. However, the start of the 2017-18 season in the world’s largest soybean exporter — and probably the entire season — is set to be bumpy and full of uncertainties.

As of September 16, farmers were authorized to start sowing in Mato Grosso and Parana states, the two main producers in the country. Weather forecasters warn, though, that rains have not arrived yet and may not arrive anytime soon. Cooler-than-average waters in the Pacific Ocean — but not cool enough to characterize a La Niña phenomenon — will make rains irregular during the first fours weeks of the planting period, until mid October. Only on the second half of October the precipitation will normalize and planting will go on properly, according to specialists.

“It’s not that we are not going to see rains for the next four weeks. It’s just that they are going to happen in scattered regions. After that, they will begin to normalize, starting in the South (Parana) and later in Brazil Center-west (Mato GRosso and other states),” said Marco Antonio dos Santos, an agriculture meteorologist at RuralClima.

That should be sufficient to allow the Brazilian soybean crop in the correct weather window, so that uncertainty will not last long. Others, however, will stay around for some time.

Take the example of soybean financials. The operational production cost per hectare in Mato Grosso is pegged 11% higher for 2017-18, compared to 2016-17, mainly due to rising costs related to depreciation and payment of loan interests, according to farmers institute Imea. On the other hand prices are depressed and discouraging.

Soybeans reached in April the lowest point since February 2015, in nominal values at Paranagua port. Currently they are 12% lower than 12 months ago and 13% below 24 months ago, according to the Esalq/BM&FBovespa cash price index.

Imea said 2017-18 soybeans are being forward sold by farmers at Real 54.60/bag (60 kg) on average in Mato Grosso. Given an operational cost of Real 2,983/ha estimated for this new season, it will be necessary to harvest 54.63 bag/ha to pay all the bills. Any yield below that would in theory be a financial loss. Considering that average productivity in Mato GRosso is projected at 54.1 bags/ha, it’s not difficult to imagine farmers will be able have peace of mind only when the combines finish their work in Q1 2018.

Want add another layer of uncertainty? That can be the currency, which influences directly the local prices, as they are a combination of CBOT prices, the exchange rate and a small premium or discount at ports. The US dollar has oscillated between Real 3.48 to Real 3.06 in the past 12 months. And the currency nowadays responds not only to macroeconomic factors, but to a volatile political landscape, that changes in a blink of an eye, depending on the corruption scandal that hits the headlines any given week.

So much uncertainty leads to extreme cautiousness among farmers and that leads to slow farmers sales. In fact, the new season is already officially open and there is a lot of beans from 2016-17 to be sold. Farmers sales of the old crop are currently at 80%, down from 89% at the same period last season, according to estimates by Safras & Mercado consultancy.
Speaking of new crop sales, they are also well below the normal levels and indicate Brazil is having a worse start than 2016-17. As of September 11, producers had sold 11.3% of their expected harvest, down from 20% one year ago and 21% of the historical average, Safras said.

Slow farmers sales dominated the market during the past season and in the end big companies had to admit it was really bad for their business.

Bunge, for example, reported a 33-percent fall in Q2 2017 profit, as slow farmer selling hurt margins. The company said export programs were committed early in the year, in expectation that the large and mostly unsold crop would be sold in heavy selling pressure during harvest.

“Take-or-pay commitments were made throughout the industry with freight and terminal providers to support the large export programs. […] The size of this mismatch between farmer pricing and the industry commitments is unprecedented and challenges the traditional wisdom of farmer marketing patterns”, said Bunge’s CEO Soren Schroder in the most recent results conference call, in August.

For now, nothing points to a much different story for the soybean industry in Brazil in 2017-18.

The post Uncertainty clouds Brazil’s new soybean crop appeared first on The Barrel Blog.

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