In 2018, Brazil passed the United States and became the world’s largest producer of soybeans. That makes it extremely important for Ontario soybean growers to pay attention to crop progress in Brazil since their crop’s outcome has an enormous impact on the prices we can expect.
At first glance, the prospects for South American soybean harvest in the spring of 2021 don’t look encouraging for Canadian farmers. With big import demand from China and a relatively weak Brazilian Real, prices look good for Brazilian producers and this fall they forecast planting 94-million acres of soybeans, their biggest crop in history. However, despite farmers’ best intentions, weather is still the ultimate determinant of how crop production works out, and through the fall of 2020, Mother Nature hasn’t been kind to Brazilian soybean farmers.
One of the key drivers of soybean futures prices through the past month has been the slow rate at which Brazilian farmers have been getting their soybean crop planted. Under typical weather conditions, Brazil starts planting soybeans in late September and seeding continues through October. In this year’s mid-October crop progress report, only 3.4 % of Brazil’s soybeans were planted by October 13 against a five-year average of 11.1 %. It’s the slowest rate of soybean seeding in that country in the past 10 years.
If you’ve been following Chicago soybean futures prices, they’ve tracked the planting problems almost perfectly. Through late September, soybean futures were trailing off as the North American market came under some harvest pressure, but as soon as the market’s attention shifted to the delayed rate of seeding in Brazil, soybean futures’ prices turned the corner and marched higher over concerns of potential supply in the world’s biggest production region.
The world has two key sources for oilseed supply: North America and South America, and their harvests come almost exactly six months apart. International soybean buyers focus their origination efforts on North American ports in the fall and on South American sources in the spring. If the Brazilian crop gets planted late, it’s likely to be harvested late and if buyers can’t switch to South American sourcing as quickly next spring, then they will need to buy more North American soybeans, increasing our hemisphere’s demand.
Delaying the South American soybean harvest by a month would increase export demand for North American beans by
16 %. That’s not precisely the way in which this season’s delays will unfold but it does provide some context to the magnitude of the market impact of slow planting in Brazil. If you’re driving down the highway and your low fuel warning light comes on, you’ll care a lot less about the price of gas at the first station you see if you know that the next gas station is a lot farther away.
Another extremely important thing to watch with regards to South American soybean production is that we are currently in a La Nina weather event. “La Nina” refers to cooler-than-normal surface temperatures in the equatorial region of the Pacific Ocean and while it tends to result in more snow for eastern Canada, it causes dryer weather in most parts of South America. It’s an odd irony, but we could anticipate seeing the biggest weather rallies in the soybean market while our fields are covered with snow and Brazilian and Argentine soybean crops deal with drought. Those record-large soybean planting intentions in South America aren’t nearly as big of a problem for Ontario prices if yields in Brazil and Argentina get shaved down due to a lack of moisture.
Weather changes really quickly. So it’s important not to get overconfident that prices are going on an extended rally due to poor growing conditions in Brazil. If key production regions get well-timed rains, they could still harvest reasonable soybean yields even with less than a normal amount of moisture.
Those South American weather issues are part of the fuel which drove soybeans futures up more than 80 cents, right through what should have been our heaviest harvest pressure on prices. Without the weather challenges, I would suggest that farmers take a pretty defensive posture in marketing soybeans when Brazil is looking forward to another record seeded acreage. But this year’s weather changes that strategy. If La Nina turns out to be not too severe, and crop conditions in Brazil and Argentina sort themselves out, then we can all add to our soybean sales pretty quickly. If the poor growing season continues in Brazil then patience in marketing soybeans may pay off really well over this fall and winter.
Steve Kell operates a crop farm in Simcoe County and is a former grain merchant for Parrish and Heimbecker Ltd.