Brazil: Harvesting the 2015/16 Soybean and Corn Crops

After months of difficulties and uncertainties posed by the challenging El Niño season, Brazilian farmers are finally making rapid advances on their 2015/16 summer harvest. With a progress of 10 percent points over the past ten days, the grain harvest in Brazil reached 19% of the planted area, while the average for the last five years in this same period is 15%. So, while weather remains an issue in Maranhão, Piauí, Tocantins, and Bahia, the harvest has been gaining strength in the center-south, including Mato Grosso and Paraná—the two most important grain producing states.

Shutterstock.com / Alf Ribiero -- Picture of harversting in Brazil

Early estimates indicate that yields for both the soybean and summer corn crops will come in only slightly below the trend line—at 78.9 bushels/acre for corn and 45.16 bushels/acre for soybeans. However, as expected, yields are highly variable across regions. For instance, in the municipality of Sorriso, Mato Grosso—one of the most important soybean producing cities in the state—the city mayor declared a state of emergency, as severely drought-impacted areas were displaying yields 30% below average. Still, given the overall good conditions for the crop in most other areas of the country, Rabobank expects the 2015/16 Brazilian harvest to reach a record high of 100.4 million tonnes for soybeans and 28.7 million tonnes for the summer corn crop.

Seasonal decline due for domestic soybean prices but corn prices resist

Brazil is the largest soybean exporter in the world, the second largest producer, behind the US, the third largest producer and second largest exporter of corn. As such, the Brazilian grain industry is highly exposed to world market prices. Yet, as a result of the advancing harvest, soybean prices have been pressured in the domestic market, receding by 4% since the beginning of the year. As a result, prices in Mato Grosso and Paraná reached USD 7.60/bu and 7.70/bu, respectively, in the second week of February.

Corn however, is still not showing the seasonal behaviour expected this time of year. As a matter of fact, corn prices in Brazil have risen in recent weeks to 20% above export parity, or to USD 4,40/bu in São Paulo—an all-time record for this time of year. Over the past months the devaluation of the real against the dollar made Brazilian exports of cereal very attractive to international buyers. As a result, corn exports are expected to reach all-time highs in 2016, greatly intensifying competition for the grain with animal protein companies. Rabobank expects Brazil to export 30 million tonnes in 2016.

Rapidly eroding stocks, along with lingering worries about yields for the second corn crop—which is being planted now—explain such high prices. It is important to note, however, that this year the El Niño remains, increasing the risk of producing the second corn crop, especially now that the production cycle fluctuates towards the drier months of the year. However, it is still too early in the season to forecast eventual yield reductions.

Brazilian corn exports in 2016 are expected to show superior performance than in 2015, thanks to the increased Brazilian competitiveness provided by the weakening of the Brazilian currency (million tonnes)

Soybean Industry—Crushers and biodiesel

The devaluation of the Brazilian currency has been contributing to higher farmer profitability, but it has also presented challenges for the Brazilian processing industry, making the acquisition of raw materials more expensive. For this reason, crushers’ margins are pressed. After rising 6.5% in 2015, crushing is expected to stagnate in 2016. The outlook is supported by the Brazilian Association of Vegetable Oil Industries (ABIOVE), which projects total crushed volume at 40.7 tonnes in 2016—grinding to a halt after expanding 7.3% in 2015.

Soybeans, Crushing Margins in Center-South, Brazil

The Brazilian animal protein industry has been experiencing positive market conditions in recent times, which could partially alleviate the difficulties faced by the crushing industry, particularly in locations near major pork and poultry producing centres.

The same is true for the vegetable oil market. At the beginning of the third quarter of 2015, the Brazilian government authorised the marketing and use of biodiesel in exceeding the compulsory blending target of 7% by some large consumers—such as rail operators and for agricultural and industrial use—who were allowed to use blends of up to 30%. While the change does not apply to the fuel retailers, it is nevertheless expected to boost biodiesel consumption in the country. 

Because of this, the Brazilian biodiesel market is projected to increase by 15% in 2016. However, idleness in the Brazilian biodiesel industry is expected to remain high in 2016, near 40%, because the total capacity installed and authorized by ANP—currently 7.6 billion liters—is well above market potential, even considering the expansion in consumption. This is likely to keep prices under pressure and the domestic biodiesel industry is expected to keep undergoing the consolidation process started in 2013.

Grain trading companies and logistics operators

For trading companies operating in Brazil, 2016 is expected to be a favourable year for arbitration, generally. As a direct result of the exchange rate, cross-national price differentials can offer good opportunities for trading houses originating from Brazil.

2016 is also expected to see further progress in the development of Brazil´s logistics for grain exports. Highlights are a better organisation of grain flow through the southern ports plus an increase in exports via ‘Northern Arc’ ports such as São Luis/Itaqui, Barcarena and Santarém.

Initiatives in the southern ports, which currently account for over 80% of Brazilian grain exports, are also expected to build on the recent improvements to the flow of trucks into ports during the harvest, reducing port congestion and costs. The Brazilian National Company of Food and Supply (CONAB) expects a record 56.7 tonnes of soybeans and 29 tonnes of corn to be exported during the 2015/16 crop year.

Download a PDF version of this article

> Click here to download <

  • Renato Rasmussen

    Senior Analyst - Grains & Oilseeds
    Read more