High Prices, Yet Brazilian Soybean Remains Competitive

Published 2019년 12월 6일

Prices of soybean and its derivatives have risen in Brazil due to several reasons. There is a general scarcity and a lack of rain in the soybean production areas, combined with high domestic and international demand. The US-China trade conflict has also increased the demand for futures from Chinese buyers.

Prices of soybean and its derivatives have risen in September and October 2019 in the Brazilian market due to several reasons. There is a general scarcity of stocks and a lack of rain in the soybean production areas, combined with high domestic and international demand. The uncertainty in agreements with the USA and China has also increased the demand for future contracts from Chinese buyers who want to guarantee supply and avoid a shortage.

Prices for Brazilian soybeans have been high since 2018, due to the US-China trade conflict. In October 2017, the price for a 60 kg bag of soybeans was around BRL 72.00 (USD 17.20). In 2018, the price in October hovered around BRL 90.00 (USD 21.50) whist this year October it hovered around BRL 88.00 (USD 21.02). The prices have been increasing since August 2019 and have hovered around BRL 88.00 for the last two months, a very high price level. Despite the high prices in the Brazilian market, the Brazilian soybean is competitively priced for international buyers due to high prices for US soybeans.

Low Stock and Lack of Rain Lead to Higher Prices

Brazil produced approximately 117 million tons of soybean this past year, a slight decrease from 122 tons in 2018. However, the gap between Brazil’s production and production in the US widened significantly, mainly due to a drop in US production. In 2019, Brazil produced 27% more soybeans than the US, the largest gap ever. The expectations for 2020 are very positive, as the total planted area grew by 3% this year.

Nevertheless, the soybeans in stock from the previous season are currently running low, mainly due to very high international demand and exports this year. This high demand has drained the storages quickly, influencing the price. A lack of rain during the planting season, the beginning of September, also caused a delay in planting. Even though Brazil has caught up since, and the 2020 harvest for soybeans is expected to be very high, this has also put upward pressure on the prices.

Trade Conflict and Depreciation of Brazilian Real

The situation on the demand-side of the market has an even stronger effect on the Brazilian soybean prices. The trade conflict between the US and China has caused a massive influx of demand from China for Brazilian soybeans. In October alone, China imported 6.18 million tons of soy, of which 61% came from Brazil and so far in 2019, the country imported around 48.9 million tons of Soy from Brazil.

The trade conflict has significantly reduced soybean stocks in China, as US imports have decreased significantly. To ensure a steady supply in 2020, many Chinese traders are locking in purchases at the beginning of the 2020 soybean season. This high demand for Brazilian soybean futures severely ramps up the price.

A final factor leading to higher prices for Brazilian soybeans is the depreciation of the Brazilian Real versus the US Dollar. Between November 1st and 27th, the currency already registered an accumulated increase of 6.64%, jumping from BRL 3.9919 to BRL 4.257. This makes the Brazilian soybeans more attractive to foreign buyers.

Forecasts

Brazilian soybeans are more very competitively priced for Chinese buyers as they are not taxed like the US soybeans are. The first shipments of the new season will start in early February, by which time prices are expected to go down slightly due to the high availability of the crop. It remains to be seen whether Brazilian soybeans remain cheaper than the US product, as that largely depends on the outcome of the US-China trade talks. Currently, the price for soybeans in Brazil is slightly edging down, but still higher than average.