Record soybean exports in 2017/18, coupled with a reduction in the 2018/19 harvest, will significantly reduce Brazil’s exportable supplies in the coming year. Local year (Feb/Jan) exports last year reached a record 84.2 million tons, 15.4 million above the previous record volume of 68.8 million recorded in 2016/17.
This has reduced carryout stocks to 1.2 million tons, equivalent to a stocks/use ratio of less than 1 percent. It has also required a significant adjustment in stock levels back to 2000 (see following article for details on Brazil and Argentina stock adjustments) in order to account for the record distribution in 2017/18.
Compounding the reduced carryout is the lower production forecast in response to dry conditions in portions of the soybean production area. The 2018/19 soybean production forecast is lowered 5.0 million tons to 117.0 million. Combined, this results in a 12.3 million ton reduction in available supply compared to 2017/18 (nearly 10 percent) . With local year crush forecast to remain near the 2017/18 level, and with some necessary rebuilding of stocks, local year exports are forecast down 14.0 million tons to 70.0 million tons.
Exports for the trade year (Oct/Sep) ending September 2019 are expected up despite the smaller crop because of record exports observed for the October to January period. Exports for the period totaled 16.6 million tons, nearly double last year’s level. However, the current trade year forecast assumes a 6 percent decline in export volume for the remainder of the 2018/19 year and, with a smaller crop, results in a 7.3 million ton decline in October 1, 2019 stocks relative to last year.
While a reduced supply of Brazilian soybeans available for export could enhance prospects for U.S. exports for the rest of the year and into 2019/20, a rebound in the Argentina crop will more than offset reductions in Brazil. In addition, demand in China, both in general and for U.S. soybeans in particular, will also weigh heavily on global export demand.
Brazil and Argentina Soybean Stock Adjustments
Adjustments in both Brazil and Argentina soybean stocks were made this month with Brazil adjustments back to 1999/2000 (2000/01 local year) and Argentina beginning in 2009/10 (2010/11 local year). Changes were made by adjusting residual (feed, seed, waste consumption) lower for Brazil and higher for Argentina. The resulting changes to stocks, higher for Brazil and lower for Argentina, are reflected in this month’s data. These changes can be seen in the accompanying chart as adjustments in their respective stocks/use values.
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Determining realistic stock numbers for both Argentina and Brazil has been an issue for some time. In Argentina, expanded stock holding was expected, especially by small- and medium-sized producers in response to high inflation and government policies. However, a simple accounting of trade, crush, and production pushed stock levels to unreasonably high levels, i.e, nearly 40 percent of use in 2015/16 and 2016/17. Stories of undocumented trade, beginning around 2010, suggested many of these soybeans may have been shipped to other South American destinations.
Brazil has a similar issue. However, in this case, PS&D stocks were generally tighter than the market indicated. With 2017/18’s record exports, it became readily apparent that supplies in Brazil were larger than an accounting of trade, crush, and production indicated. Given past stories of undocumented trade in planting seeds and lucrative border trade, USDA has decided to adjust stocks.
This is being done by using the residual value in the balance sheets to boost stock levels that show supplies to meet Brazil’s 2018/19 processing and export demand. While the changes are significant, the relative year-over-year changes in both Brazil and Argentina generally conform to previous published balance sheets.
Similarly, the combined balance sheet for the four major South American soybean exporters, Argentina, Brazil, Paraguay and Uruguay, remains similarly close to previously published balance sheets with only the recent years impacted significantly by changes in trade, production, and processing offered up this month.
Accordingly, a comparison of stocks in South America and the United States illustrates the current state of affairs in the global soybean market. Namely, strong demand for soybeans from Brazil coupled with Argentina’s drought-reduced 2018 crop significantly lowered stocks in South America in 2018. In contrast, multiple record U.S. soybean crops, along with a decline in both China demand and U.S. exports to China, have led to a precipitous buildup in U.S. stocks.
U.S. soybean export bids in January, FOB Gulf, averaged $346/ton, up $5 from December and $17 from November. In comparison, Brazil Paranagua averaged $349/ton, down $3 from December and $34 from November. Argentina Up River FOB averaged $347/ton, down $10 from the December and $22 below November.
U.S. soybean meal export bids in January, FOB Gulf, averaged $348/ton, down $4 from December while $2 above November. In comparison, Brazil Paranagua FOB averaged $361/ton, up $36 from December and $26 from November. Argentina Up River FOB averaged $334/ton, up $8 from December and $2 from November.
The price spread between U.S. and South American soybeans narrowed over the past 2 months in response to Chinese purchases: slowing in South America prior to the Lunar New Year holiday and resuming U.S. soybeans following the G-20 summit. For soybean meal, the price spread between U.S. and South American origin has risen.
Reduced crush in South America, particularly in Brazil due to a tightening of soybean supplies prior to harvest, has helped strengthen local meal prices while ample soybean supplies for crush in the United States has kept U.S. meal prices mostly unchanged over the past 2 months.