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August 10, 2016

Brazil's Soybean Acreage to Expand 1.5% in 2016/17

Brazilian farmers are allowed to start planting their 2016/17 soybean crop starting September 15th and it is estimated that the 2016/17 Brazilian soybean acreage will expand 1.5 % compared to last year. If verified, it would be the smallest expansion in soybean acreage in about a decade. The trend in recent years has certainly been for the soybean acreage to expand, the safrinha corn acreage to expand, and the full-season corn acreage to decline (see table at end of this article).

The 2016/17 Brazilian soybean acreage is estimated at 33.72 million hectares or 500,000 more than last year (+1.5%). The total Brazilian soybean production in 2016/17 is estimated at 100 million tons with a yield of 2,965 kg/ha or 43.0 bu/ac, which is slightly better than the three year average yield prior to 2015/16.

I am going to be a little conservative with my soybean yield estimates for the 2016/17 Brazilian soybean crop because of the mild La Nina in the Pacific Ocean. A La Nina is generally associated with dryer than normal conditions in southern Brazil during the September to December period. If that turns out to be the case, there may be some delays in getting the crop planted and established. At the end of this article you will also see a partial list of some other agencies and their 2016/17 Brazilian soybean estimates.

The reasons why the Brazilian 2016/17 soybean expansion will be the smallest in recent years include: farmers coming off a very disappointing 2015/16 soybean crop, a disastrous 2015/16 safrinha corn crop in central Brazil, weak international soybean prices, strong domestic corn prices, a lack of capital, tight credit policies, high interest rates, a poor domestic economy, and probably the most important reason is that any soybean expansion must occur in areas where last year's crops were the worst.

Expansion in Central Brazil and Northeastern Brazil - Let's start with the main reason. Most of the soybean expansion in recent years has been in central Brazil and northeastern Brazil. In central Brazil, the expansion mainly occurs when degraded pastures are converted to row crop production especially in the state of Mato Grosso. In northeastern Brazil, the expansion mainly occurs due to the clearing of new land. Unfortunately, both of these areas had very disappointing growing seasons in 2015/16.

In central Brazil, hot and dry weather first impacted the soybean crop and then an early end to the rainy season led to a disastrous safrinha corn crop. In northeastern Brazil, the weather last growing season was equally as adverse. Hot and dry weather delayed the initial planting of the soybeans and corn crops. When the rains finally arrived in February, they were torrential, which caused localized flooding. By the end of February the rains had ended and hot and dry weather returned. All the crops in the region were severely impacted including soybeans, corn and cotton.

Many farmers in these two regions did not produce enough crops to pay their loans or to fulfill their forward contracts with the grain companies. Numerous municipalities in these two regions declared a state of emergency in order to help the local farmers renegotiate their loans and contracts. The farmers are hoping to extend their obligations over several years so they can stay in business.

Additionally, a number of the mega-corporate farming companies in these two regions have already gone into bankruptcy in the hope of reorganizing their finances. Their problem was not just poor yields, many of them conducted their business in dollars and they were severely impacted by the fluctuation of the Brazilian currency. Therefore, the financial strain is the greatest in the areas where the soybean expansion needs to occur.

Lack of Capital and Tight Credit - Many farmers in Brazil are already complaining about the lack of credit that is available for the 2016/17 growing season and the high interest rates that are being charged. If they qualify for a production loan through the annual Brazilian Harvest Plan (which is their equivalent of the U.S. Farm Program), the loans come with subsidized interest rates of approximately 8-12%, which are higher than the approximately 6-8% charged last growing season. If a farmer is forced to go to a commercial bank for his production loan, the interest rate is probably going to be above 20% because the prime rate in Brazil is 14.5%. So regardless of where they originate their production loans, it is going to cost more than last year.

Strong Domestic Corn Prices - In southern Brazil where soybeans compete with full-season corn for the same acreage, it is expected that farmers will increase their corn acreage maybe 5-10% at the expense of soybeans. Domestic corn prices in Brazil are at record high levels due to the disastrous safrinha corn crop. So it is likely that full-season corn will occupy some hectares that would have gone to soybeans.

There will probably only be a limited increase in full-season corn acreage in southern Brazil because corn is more expensive to plant and the increased corn acreage will only be in areas where it is not possible to produce safrinha corn. The full-season corn acreage increase may be in the range of 300,000 hectares. Conab will issue their first estimates of the 2016/17 growing season in their October Crop Report.

Additionally, there may not be enough storage space for a big increase in corn production in southern Brazil. There is already a chronic shortage of storage for soybeans, so if corn is added to the mix, it could make the problem even worse. Any additional corn production would probably have to be sold out of the field due to a lack of storage, which reduces corn's liquidity.

A number of groups have issued their estimates for the 2016/17 Brazilian soybean crop. Below is a partial of the estimates and some of these estimates may be as much as a month old. This information is from Reuters and various Brazilian news agencies.

Agency2016/17 Soy AcreageChange2016/17 Production
Michael Cordonnier33.7 million hectares+1.5%100.0 mt
AgRural33.5 million hectares+0.9%100.6 mt
Franca Junior33.8 million hectares+1.5%104.5 mt
Safras & Mercado33.5 million hectares+0.8%103.4 mt
AGR Brasil 33.8 million hectares +2.0% 105.0 mt
Agroconsult 33.6 million hectares+1.1%-
Cerealpar--104.0 mt
International Grain Council--101.4 mt
Informa34.3 million hectares+3.2%105.0 mt
USDA--103.0 mt

Below is a history of soybean and corn production in Brazil. The trend in acreage is very obvious - more soybeans and safrinha corn while less full-season corn.

YearFirst Crop Corn Area mha% Change Area First Crop Corn Prod mtYield kg/haYield bu/acSecond Crop Corn Area mha% Change AreaSecond Crop Corn Prod mtYield kg/haYield bu/ac
2004/059.021 27.298 3,026(46.6) 3.186   7.708 2,419(37.2)
2005/069.652+6.9 31.8093,295(50.7) 3.311+3.9 10.705 3,233(49.7)
2006/079.493 -2.2 36.5963,855(59.3) 4.561+37.7 14.773 3,238(49.7)
2007/089.635+1.4 39.9644,147(63.8) 5.130+12.4 18.688 3,642(56.0)
2008/099.270 -3.7 33.654 3,630(55.9) 4.901 -4.4 17.394 3,549(54.6)
2009/107.724-16.6 34.079 4,412(67.9) 5.269+7.5 21.938 4,163(64.1)
2010/117.637 -1.1 34.946 4,575(70.4) 6.168+17.0 22.460 3,641(56.0)
2011/127.558 -1.0 33.867 4,434(68.2) 7.619+23.5 39.112 5,133(79.0)
2012/136.783-10.2 34.576 5,097(78.4) 9.046+18.7 46.928 5,187(79.8)
2013/146.683 -1.4 31.652 4,736(72.9) 9.182+1.5 48.252 5,255(80.9)
2014/156.142 -8.0 30.082 4,898(75.4) 9.550+4.0 54.590 5,716(88.0)
2015/165.440-11.4 26.078*4.795*(73.8)*10.314*+8.0* 43.053*4,174*(64.2)*

YearSoy Area mha% Change AreaSoy Prod mtSoy Yield kg/haSoy Yield bu/ac
2004/0523.301+9.052.304 2,245(35.5)
2005/0622.749-2.355.027 2,419(35.0)
2006/0720.686-9.058.391 2,823(40.9)
2007/0821.313+3.060.017 2,816(40.8)
2008/0921.743+2.057.165 2,629(38.1)
2009/1023.467+7.366.688 2,927(42.4)
2010/1124.181+3.075.324 3,115(45.1)
2011/1225.042+3.566.383 2,651(38.4)
2012/1327.736+10.781.499 2,938(42.6)
2013/1430.173+8.786.120 2,854(41.3)
2014/1532.092+6.396.228 2,998(43.4)
2015/1633.228+3.595.574* 2,876*(41.7)*

Area=million hectares
Production=million metric tons
Yield=kilograms per hectare and bushels per acre
*Estimated
Source: Conab