Brazilian soybean and corn crops continue to break production and early sales records, driven by favorable exchange rates for farmers. How is this performance reflected along the agriculture value chain and how has it impacted the fertilizer market?
In the sixth episode of the Market Talks series, Flavia Bohone, Agriculture and Fertilizer Editor, and Jose Roberto Gomes, Agriculture and Fertilizers Reporter, analyze production and early sales records broken by Brazil’s agriculture market.
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Flavia: Hello and welcome Market Talks, a series of podcast produced by Argus about the main developments on the commodities and energy sectors in Brazil and worldwide. My name is Flavia Bohone, editor of the publication Argus Brazil Grains and Fertilizer. Today I’m talking to José Roberto Gomes, grains and fertilizer reporter, about the rapid advance in early commercialization of soybean and corn crops. Welcome, José Roberto.
José: Thank you, Flavia. It’s a pleasure to be here.
Flavia: Jose, anticipated sales for the 2020-21 harvest in Mato Grosso, which is Brazil´s main grain producer state, are at a fast pace. What is leading this movement?
José: Flavia, the anticipated sales of the soybean and corn crops of the 2020-21 season in Mato Grosso are, indeed, at record levels. And the main factor that drives this movement is the exchange rate that ends up driving domestic commodity prices. So far this year, we have seen an increase of more than 40pc of the dollar against the real, while soybean prices have risen by almost 30pc and corn prices by 20pc in Mato Grosso. This means that the sale of commodities is more attractive to producers. It is worth remembering that several factors influence the exchange rate, but this year we have a strong international crisis, caused by the Covid-19 pandemic, which has strongly affected the currency.
Flavia: You mentioned that advance sales are at record levels. What are the most recent data?
José: In the case of soybeans, the most recent data from Imea, the Mato Grosso Institute of Agricultural Economics, shows that farmers have already traded just over 37pc of the estimated production for the 2020-21 harvest, which will not be planted until September. One year ago, the anticipated sale for the 2019-20 harvest was just over 12pc. And when we compare it with the average of five years, the difference is even more striking. In the period, the average sold is around 7pc.
Historical levels are also seen in the corn negotiations that will be planted in January, after the soybean harvest. In this case, farmers have already traded almost 30pc of the expected production. Last year, as well as the past five years, there were simply no advance sales in that period.
Flavia: We are looking ahead, talking about the next harvest. But how is the sales pace of the current season?
José: Also accelerated. In the case of freshly harvested soybeans, farmers in Mato Grosso have already traded 89pc, also above the five-year average for the period, which is 75pc. The corn of the 2019-20 crop, which begins to be harvested at the end of this month, has already had 82pc of the production negotiated. The five-year average for this period is around 61pc.
Flavia: With trading at a fast pace, it is expected that production will also be high next year. What are the estimates?
José: Yes, the estimated figures show that the country as a whole is poised to have record soy production in the 2020-21 season. The most recent projection by the US Department of Agriculture is 131 million tons. Still according to the USDA calculations, this would represent about 36pc of world production. The Brazilian corn crop of the 2020-21 season should also be a record and total 106 million tons.
Flavia: Speaking of corn, this year we lacked rain in some areas of the country. How is the production expectation for the second crop of the 2019-20 season in the country?
José: Flavia, we had unfavorable weather conditions in an important period of the crop's development. But, despite this, the most recent estimate by Brazil's national agricultural statistics agency Conab for the production of the second crop is still at a record level of almost 76 million tons. This is because the planted area grew well, with an increase of 7pc over the previous cycle, which offsets some losses driven by climate conditions. Now, it is important to highlight that the rain levels in May will be fundamental to confirm or not this production estimate, since the plantations are still under development in many regions of the country.
Flavia: Well, we know that the dollar is favoring sales by Brazilian farmers. But how is the barter rate?
José: In this case, there is an important factor, which is the drop in international fertilizer prices, in addition to the appreciation of the dollar, which favors commodity prices for Brazilian producers. In the case of corn, for example, the barter rate in Sorriso and Rondonopolis, in Mato Grosso state, shows that with just over 44 bags of corn it is possible to buy 1 ton of NPK. This number is much lower than what was seen a year earlier, when the barter rate was 67 bags of corn per ton of NPK.
Flavia: You mentioned falling fertilizer prices. What is causing this fall?
José: There are some factors, but we can, at this moment, point out that we are outside the acquisition window for the winter crop and many producers have anticipated their purchases, having some time to accommodate the still needed purchases. This explains part of the prices drop. To give you an idea, since January the price of granular urea in Brazilian ports has fallen by almost 11oc. When we compare with the prices reported in mid-May last year, the drop is almost 25pc. In addition, last year we saw a global oversupply, increasing inventories, which also favored the drop in prices. The industry took measures such as production cuts in the second half of last year to mitigate these impacts. Next came restrictions to prevent the spread of Covid-19, which also led to decreased production. But so far, inventories and advance purchases have limited price recovery.
Flavia: Thank you very much, José Roberto. And thank you for tuning into our Argus podcast. If you want to learn more about the impacts of the pandemic on the global commodities market, visit our dedicated microsite on the subject at www.argusmedia.com/coronavirus.