U.S. Soy Exports Big Beneficiary of Brazil’s Price Woes: Braun

(Reuters) – The Brazilian farmer’s reluctance to sell newly harvested soybeans may have finally paid off for U.S. soybean merchants, who could be in for some better-than-expected export sales in the coming months.

By the end of March, Brazilian farmers had sold 49 percent of their soybean crop, the lowest in seven years and well behind the five-year average of 63 percent, according to consultancy AgRural. And although the country’s harvest is nearly complete, farmers are still holding on to their beans, hoping for prices to rise.

Brazil is the world’s leading supplier of soybeans, shipping the majority of their product to top-consumer China. The United States is a close second in terms of export volume, and it often competes with Brazil for business depending on prices, logistics, and domestic supply.

In the week ended April 20, net U.S. soybean sales totaled an impressive 808,000 tonnes.

Weekly sales are generally closer to 300,000 tonnes at this time of year, and traders were not expecting to see more 450,000 tonnes in the latest report.

U.S. soybean sales are typically the slowest during the second half of the marketing year – March through August – unless there are supply shortages elsewhere. Sales during this period have regularly exceeded 500,000 tonnes only when South America was facing significant harvest losses, and this happened in 2009, 2012, and 2016.

The recent uptick in U.S. sales by itself is not enough evidence to quickly overhaul U.S. export forecasts. But if this trend continues over the next several weeks, the U.S. Department of Agriculture may have to adjust its 2.025 billion-bushel forecast for 2016-17 upward.

And there is good reason to believe the trend could stick around.

PRICE DILEMMA

It is not hard to understand why Brazilian farmers are reluctant to offload their crop. In Sorriso, Mato Grosso, soybean prices are near 49 reais per 60-kg bag, which is roughly $7 per bushel.

This price probably stings given that farmers selling two months ago could collect near $8 per bushel. Last year was even better as farmers were paid $8.30 per bushel one year ago today, and $10.60 had they waited until last year’s price peak on June 12.

At Paranaguá port in the No. 2-producing state of Paraná, prices are down 14 percent from year ago and nearly 30 percent from the June 2016 peak, according to benchmark index Esalq/BM&FBovespa, which assesses deals closed at the port.

With prices below the cost of production in many cases, Brazilian farmers are hoping for a price rally in Chicago soybean futures over the next couple of months, most likely stemming from perceived issues with the newly planted U.S. crop. This would boost potential profits for the Brazilian farmer, but a rally is not on the horizon just yet.

The lesser supplies at Brazilian ports have also rendered the U.S. rates more attractive for the primary customer. The delivery rate of soybeans from Paranaguá to China has averaged about $5 per tonne more expensive than those from the U.S. Gulf over the past week.

The U.S. price has been more competitive than its South American counterpart for nearly all of 2016-17 so far, which has rarely been the case in the past. If the price disparity remains as is and Brazilian farmers still are unwilling to let go of their stashes, then U.S. soybean exports could be on the way up, trimming carryout in the process.