Late flourish for Brazil soybean yields, B11 delay could cap premiums

Brazil’s late summer flourish for soybean yields could have a bigger impact on future price rises than normal, market sources have told Agricensus, as the additional volume produced has occurred in a state that typically does not forward sell its crop.

Over the past two weeks, both official forecasters and private analysts have increased their projection of Brazil’s soybean crop.

The USDA last week said the crop would be 500,000 mt bigger than it previously expected at 117 million mt, while Brazil's food statistics agency (Conab) said the crop would be 300,000 mt more than expected at 113.8 million mt.

The trigger for those revisions are better-than-expected yields in southern states such as Rio Grande do Sul, which have experienced much needed rains following weeks of dry weather.

However, with most farmers in Rio Grande do Sul typically selling on a spot basis as opposed to selling forward, a greater percentage of this year’s crop has not been sold compared to previous years.

“The fact is, in Mato Grosso, for example, farmers sell a lot in advance, in Parana a little less, and in RGDS much less they are ‘spot sellers’. So, now with the harvest around 70%, the farmer selling is around 25-30%, while in Parana 55-60% and Mato Grosso 70% has been sold forward,” said Aldo Lobo, an analyst with Granopar.

A second source agreed.

“The farmers (in Rio Grande Do Sul) start harvesting after the majority of states. And they are much more prone to sell the spot for a forward fixing level. That’s very bad because these southern growers will limit the upside potential for our basis."

With Brazilian farmers tending to sell soybeans now and fix prices later, there are now concerns that the additional volume from Rio Grande Do Sul could be priced as soon as there is an uptick in premiums.

“When (premiums) pick up, farmers fix prices. And this works as a ceiling at premium ports," the second source said.

Number two

Such has been the turbulent weather across Brazil, that Rio Grande Do Sul is set to overtake Parana as Brazil’s number two producing state for soybeans after Mato Grosso.

The state typically produces around 17-18 million mt, with around two-thirds of that destined for export.

However, this year, production is expected to exceed 20 million mt, while Parana’s crop is set to fall.

Meanwhile, local demand will not be as high as previously thought after the government delayed the start of the roll out of Brazil’s B15 mandate – whereby all diesel sold would need to comprise of 15% biodiesel.

“The entire sector was expecting at least a 10% rise in biofuel demand due to the B11 mandate (in June). But the government has postponed the hike start. This leads the market to an more even bearish sentiment when it comes to spot prices,” said the second source.

Other market sources disagreed with such a bearish picture, saying much will depend on the outcome of trade talks between the US and China.

“Farmers can also hold on to their crop for as long as they want down there. They hardly have any warehousing costs as co-ops don’t actually charge them for that,” said Steve Cachia, an analyst at brokerage Cerealpar.

“So you have years even in a record crop situation when down south you can have a false and forced scarcity, which in turn forces premiums higher. Eventually it depends on demand outside Brazil, and how aggressive buyers are to get hold of the crop,” he said.