Optimism Remains for U.S. Soy Exports Amid Brazilian Competition

(Reuters) – U.S. soybean shippers may have been disappointed with demand revisions from the U.S. Department of Agriculture on Thursday, but there is good reason to maintain optimism over the domestic export outlook.

In its monthly supply and demand report, USDA reduced 2016/17 U.S. soybean exports to 2.025 billion bushels. This follows four straight months with the estimate having been unchanged at the 2.05 billion mark.

While the new figure still represents a 5 percent increase over the previous high set last year, the move is somewhat unprecedented as the U.S. agency has not made any cuts to domestic soybean exports later than January during the past three record-setting years.

The decrease in U.S. exports was not severe – only 25 million bushels or 680,000 tonnes – but given that global soybean demand actually increased in Thursday’s report, the downward adjustment may have been somewhat surprising, especially since the country has been shipping record volumes of soybeans in recent months.

China, the world’s largest soybean buyer, is now expected to import 87 million tonnes this year, up from the 86 million that USDA issued last month. This is an all-time high for the country, which imported 83.23 million tonnes of soybeans last year.

The extra business from China was in no uncertain terms awarded to Brazil, as USDA projects that the top global exporter will ship a record 61 million tonnes of the oilseed this year, an increase of 1.5 million from last month’s estimate.

And the supply should certainly be around to fulfill the expectation.

USDA cranked up the outlook for Brazil’s soybean harvest – which is roughly halfway complete – to 108 million tonnes. This 4 million-tonne increase over last month’s peg is effectively the size of the loss suffered by the previous crop amid a late-season drought, which spiked demand for the U.S. product beginning last July.

It does not appear that the United States will get the same late boost to its soybean exports as it did last year based on how things are going in Brazil thus far.

But there are a couple of potential advantages for U.S. soybean suppliers over their key South American competitor that could prevent much more reduction to the yearly export goal.

Over the past few years, Brazilian soybeans have typically been cheaper than their U.S. counterpart during this month, but that disparity has narrowed and in some cases, vanished.

For Paranagua, one of Brazil’s main ports, delivery rate of soybeans to China is about $6 per tonne more expensive than those from the U.S. Gulf. On the same date over the past three years, Paranagua beans were going for a $1 to $20 discount to the U.S. product.

The United States typically exports its soybeans most heavily between October and February, after which business drops off and shifts primarily to Brazil through at least August. U.S. suppliers usually see rather suppressed activity after March unless an issue arises in South America.

With the highly competitive prices between the two rival products this year, it is not entirely clear whether buyers will preference the United States or Brazil, but the chances are better than usual that sales of the U.S. product could be relatively good through the down season – especially amid a large domestic supply.

Logistical issues for Brazil cannot be ruled out either as the country will be hauling and shipping record loads of soybeans to and from the ports.

Late last month, torrential rains damaged an unpaved stretch of road in northern Mato Grosso – the largest soybean producing state in Brazil. Trucks loaded with soybeans bound for northern ports were stuck in the mud, delaying at least 11 vessels.

This situation has since eased, but it is a testament to just how weak some crucial portions of Brazil’s infrastructure are. But luckily for both buyers and sellers, a major reduction in corn exports this year along with improvements in port operations have greatly reduced congestion at the terminals relative to recent years.

Another factor that could be driving a few extra sales for U.S. soybeans in recent weeks is the hesitancy of Brazilian farmers to sell amid its strengthening currency, the real. A stronger real effectively reduces potential profit from the sale.

As of this week, soybean producers in Brazil have sold 45 percent of the crop so far, compared with 54 percent a year earlier and a 50 percent multiyear average. This is likely reflected in a vessel lineup 40 percent lighter than year ago for March and April, according to data from shipping agency Williams.

But still, Brazil shipped a record volume of soybeans for the month of February, and the weakening of the real over the past two weeks or so should have encouraged local farmers to step up their selling.

Barring any unforeseen circumstances, both the United States and Brazil should ship more soybeans in the 2016/17 season than ever before, but which country benefits more relative to the other is yet to be seen and USDA’s recent revision only highlights how stiff the competition is between the two countries.