Soy market analysis

Soybean prices in Chicago, for the first month quoted, suffered a strong retreat at this turn of the month. The bushel of the oilseed returned to the house of US$ 12.00, closing on Thursday (02) at US$ 12.79, against US$ 13.67 a week earlier. In other words, in five business days it lost almost a dollar. In turn, the August average, for the third consecutive month, dropped, losing 3.7% compared to July, to settle at US$ 13.71/bushel. In August last year, this average was US$9.04/bushel.

While the quality of American soy crops, on August 29, remained with 56% between good to excellent, against 66% a year earlier, another 29% were in regular conditions and 15% between bad and very bad, with 93% of the crops were in the pod formation stage. That said, the weather, with the return of rains in the American producing regions, was the main cause of the drop in prices. At the same time, Hurricane Ida, which brought rain, also caused huge logistical problems at the shipping ports in the Gulf of Mexico. As a result, the US export logistics was compromised, leading China to temporarily direct more purchases in Brazil, albeit with higher values. The hurricane, already at the level of a tropical storm, upon reaching Louisiana compromised Cargill’s grain terminal, causing significant damage, with no deadline for resuming operations.

The hurricane would have disrupted 60% of US grain export capacity. (cf. Agroinvest) In the short term, this tends to favor Brazil, as the rest of the national soy will be even more sought after. Remembering that this September, the summer harvest begins in the US and the shipping terminals are essential. In addition to Cargill, ADM and Bunge are also evaluating possible damage to their port terminals. (cf. Bloomberg) For yes or no, the fact is that in light of this set of news, soybean prices fell sharply this week. Even so, in the last three weeks the US exported 3.3 million tons of soybeans, proving to be more competitive than Brazil, a fact that should last until the new Brazilian harvest. However, the damage caused by Ida momentarily puts Brazil back in competition for this market. Remembering that China still needs 20 million tons, until the beginning of 2022, to be supplied.

Once the hurricane’s damage has been recovered, US soybeans will once again be more sought after in this period. In Brazil, in addition to the sharp retreat in Chicago, the revaluation of the Real, which returned to around R$5.16 during the week, also pushed down soybean prices. The average in Rio Grande do Sul during the week was R$ 159.68/bag at the counter, while in other national squares prices varied between R$ 152.00 and R$ 156.00/bag. At the same time, despite the return of rain in Rio Grande do Sul, producers in the Center-South region of Brazil are concerned about the climate, which has been very dry for some months, and the strong increase in production costs, which have continued to rise. In this sense, for the state of Rio Grande do Sul, Fecoagro updated its calculations and pointed out, at the end of August, that the total cost of production would have risen 48.4% in this harvest, while in disbursement the increase is 53.4%. Thus, to pay the total costs of the crop, the producer will need 35.6 sacks/hectare to balance expenses, that is, an increase of 13.7% in the exchange ratio over the past crop.

This is if the harvest is normal and prices remain around R$ 150.00/bag. The total cost of soybeans from Rio Grande do Sul, on average, will be R$ 5,408.23/hectare, considering the average productivity of 60 bags per hectare, according to the Federation. It is important to remember that, in the last harvest, when Rio Grande do Sul set a record for soy production, the average productivity in the state was only 55.5 sacks/hectare. (cf. Conab). That said, the Brazilian soybean production, in the new 2021/22 crop, continues to be projected between 142 and 144 million tons, as long as the weather helps. This would be between 6 to 8 million tons above what was harvested in the last harvest, according to Conab.

Thus, it is noteworthy, given the current market reality and its trend, that Brazilian soy producers are holding back sales, expecting even higher prices. Some believe that if there are climate problems on Brazilian crops, given the possibility of a La Niña phenomenon in our next summer, soybean prices will tend to soar. A high risk decision, by the way. According to Safras & Mercado, in Paraná and Rio Grande do Sul, producers, at the beginning of August, would still have 12.4 million tons of the last harvest to sell. As a result, soybean stocks in the southern region of the country are currently above expectations.

However, if this is not removed before the new harvest, and the latter comes normal, there will be negative pressure on domestic prices if Chicago and the exchange rate stabilize at current levels. In Rio Grande do Sul, up to 06/08, 62% of the past crop had been sold, against 73% in the historical average. In Paraná, sales reached 78%, against 80% on average. As for the future harvest, the two States are expected to harvest together a total of 42.2 million tons, with only 12% of which had been sold in advance until the beginning of August. Last year, at this time, the Gauchos had already sold 27% of the harvest, while the Paraná people reached 45% of the total expected for the harvest.

In parallel, Brazilian soy exports, in August, totaled 6.5 million tonnes, according to Secex. Last year, the volume exported in August reached 5.8 million tons. The average value of the ton this year reached US$ 485.80, against US$ 353.60 in August 2020. In other words, there was an increase of 37.4% in the period. As a result, in 2021 (January to August), Brazil has already exported 76.5 million tons of soybeans, against 74.5 million in the same period of the previous year.

The soy complex reached 90 million tons, against 87.8 million in the first eight months of 2020. Thus, between January and August of this year, Brazil has already exported 12.3 million tons of bran and 1.2 million tons of tons of soybean oil. As in the case of grain, we are facing record volumes in 2021. For September, exports may still be important, especially given the problem in US ports caused by hurricane Ida, however, the tendency is for domestic demand to be stronger , intensifying the dispute for the remaining soybeans.