Brazil 2016-17 soybean production poised to set record

Brazil's soybean area to increase at slowest pace in five years.

The U.S. Department of Agriculture's Foreign Agricultural Services recently forecasted that Brazil will have a record 2016-17 soybean crop of 101 million metric tons as a result of a slight increase in planted area. Despite the projected record crop, USDA said it will be the slowest area growth in the last five years due to expectations for higher costs of production, tight credit policies, higher interest rates, the economic downturn and soybean areas shifting back to full-season corn.

The increase in 2016-17 soybean production represents a 5% increase compared to USDA's 2015-16 production estimate. The 2016-17 planted area is forecasted to expand to 33.7 million hectares, an increase of 1.8% compared to last year's season.

The seasonal planting moratorium (vazio sanitario) stipulated by the government of Brazil ended on Sept. 15, which also marked the official start of the 2016-17 season.

“Even though the planting pace was faster compared to last year, farmers are still cautiously waiting for more normal rains, which are forecasted for October,” the report noted.

As of Sept. 29, both Mato Grosso and Parana, the two largest soybean-producing states in Brazil, had a faster planting pace compared to last year, but the pace was still slower than average.

“The low global soybean prices continue to be a concern for Brazilian producers. However, the volatility of the Brazilian real can either help producers or put them in a difficult situation,” the report noted.

Last year, the Brazilian real's devaluation of more than 40% pushed domestic soybean prices up to record levels. The real has stabilized since August at about 3.20 reals per dollar. However, analysts expect the Brazilian real to devalue to about 3.50 reals per dollar by the beginning of 2017, right at the start of the harvest. If this materializes, USDA said this could push domestic prices higher again in Brazil.

Dry, hot weather resulted in USDA reducing Brazil's 2015-16 soybean production figure to 95.5 mmt and increasing planted area to 33.3 million hectares.

“The difficulties posed by the challenging El Niño season in 2015-16 in many parts of Brazil negatively impacted national yields. Dry and hot weather, mainly in the center-west and northeast of Brazil, resulted in serious damages to crop yields,” the report stated.

Exports to set a record

USDA forecasted Brazil's exports at 57 mmt for 2016-17 due to higher demand from China and the weaker Brazilian real, which continues to make Brazil more competitive in the global market.

Compared to last year, the pace of forward contracts for the 2016-17 crop is much slower. In Mato Grosso, for example, USDA estimated that just 27.4% of the crop has been contracted, about 12.7% lower than last year. This is a result of producers expecting a weaker real by early 2017, which the report noted would increase domestic prices and accelerate the forward contracts.

As a result of lower available supplies, USDA reduced its 2015-16 export forecast to 52 mmt. In the first four months of the 2015-16 season, Brazil was on its way to hit record exports due to high demand from China. Additionally, the relatively weaker Brazilian real pushed domestic prices to record levels, which accelerated the pace of exports to the highest in three years. However, since August 2016, USDA said lower available supplies due to weather problems affecting the crop, ramped down exports to the slowest pace since 2013-14.

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