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August 1, 2019

Brazil Ministry - Soy Production to Expand 32.9% over next Decade

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Brazil's soybean production could increase 32.9% over the next 10 years to 151.9 million tons according to a long term study from the Brazilian Ministry of Agriculture released last Friday.

Soybeans - The Ministry estimates that over the next decade, Brazil's soybean acreage could increase 9.5 million hectares or 26.6% to 45.3 million hectares in 2029 (111.8 million acres). Of all the major crops in Brazil, the soybean acreage will expand the most over the next 10 years, although it will still be less than the 67% it expanded over the past decade.

Brazilian soybean acreage is expected to expand in four areas. In northeastern Brazil, which is comprised of the states Maranhao, Tocantins, Piaui and Bahia, commonly referred to as the Matopiba region, soybean acreage is expected to expand 14.9% over the next decade. There is still land available in the region at relatively cheap prices and the climate in the region is generally favorable and similar to the climate in the cerrado region of central Brazil. One of the biggest challenges in the region is the general lack of infrastructure, but that is slowly improving. On the positive side, the region is relatively close to export facilities which would help to hold down the cost of transportation.

Another area of expansion will be in the cerrado areas of central Brazil as farmers convert degraded pastures to row crop production. Land prices are relatively expensive in states such as Mato Grosso, so it is more economical to convert pastures to row crop production than it is to purchase new land for the same purpose. This pasture conversion is occurring all across the cerrado regions of central Brazil.

In areas where there is not any new land or pastures available, soybean acreage will expand by substituting for other crops. That is what is happening in states such as Parana where farmers are opting for less full-season corn production in favor of increased soybean acreage. The full-season corn is then converted to safrinha corn planted after the soybeans are harvested.

Lastly, additional soybean acreage is expected on the southern fringe of the Amazonian states of Rondonia and Para where land prices are still relatively cheap.

In the short-term, the Ministry is estimating the 2019/20 soybean production at 120.6 million tons with 73 million tons of soybean exports.

Corn - As far as corn expansion is concerned, the Ministry estimates that Brazil's corn acreage will only expand 0.7% over the next 10 years to 18.5 million hectares (45.6 million acres). The Brazilian corn acreage expanded 33% over the past decade with safrinha corn acreage expanding 134%. No additional land will be needed for the corn expansion since most of Brazil's corn is now produced as a second crop after soybeans.

Over the next decade, the Ministry is expecting corn production in Brazil to increase 20% to 114.5 million tons by 2028/29 almost entirely due to improved productivity. Domestic corn consumption is expected to remain in the range of 65% and corn exports are expected to increase 10 million tons to 41.4 million tons in 2028/29.

Personal Note on Future Brazilian Soybean Acreage and Production - I think the Ministry is much too conservative in their estimates of soybean and corn expansion over the next 10 years. Soybean acreage expanded 6-7% on an annual basis over the past decade and now they estimate that it is only going to expand 2-3% over the next decade? Granted, as the acreage increases, the percent of increase will decline, but I think Brazil will have a lot of things going in its favor over the next decade.

China is the world's largest consumer of soybeans and while their demand for soybeans is down right now due to African swine fever that is not always going to be the case. Once the disease is under control (and it will get under control), the demand will return, especially from Brazil.

China is going to remember the trade dispute with the United States and the tariffs imposed by the occupant of the White House and they will search for alternative sources of soybeans. In the years ahead, China will look even more to Brazil and Argentina for their soybeans. China and Brazil already have a good working relationship and going forward, Brazil will be the largest soybeans producer in the world and China will be the largest soybean consumer, so I think it just makes sense for the two countries to increase their soybean trade.

Additionally, the soybeans from Brazil are cheaper, better quality, higher protein, and cleaner that soybeans from the United States. Therefore, I think Brazil will be the preferred source for the world's soybeans. Brazilian farmers, like all farmers, respond to price when they decide what to plant. Soybean prices are not very good right now, but if the U.S. or Brazil has a disappointing soybean production, the current excess supply could quickly disappear especially when the demand from China returns. When that happens, prices will improve and Brazilian farmers will be more than willing to ramp up their soybean production.

Personal Note on Future Brazilian Corn Acreage and Production - I think the Ministry is extremely conservative in their estimates for future corn production in Brazil. They are estimating that the corn acreage will only increase 0.7% over the next 10 years, or less than 0.1% per year. In the past ten years, the corn acreage expanded 33% and the safrinha corn acreage expanded 134%. Why would Brazilian farmers all of a sudden decide that it was not worth their efforts to expand their corn acreage?

Especially since the safrinha corn production now represents more than 70% of Brazil's corn production. Safrinha corn acreage has been increasing year after year for two decades or longer. Safrinha corn yields continue to improve as seed companies develop hybrids specifically for the safrinha crop. Brazilian farmers continue to plant more early maturity soybeans which allow more time to plant the safrinha corn during the ideal planting window.

Two of the obstacles for corn production in central Brazil are the high cost of transportation due to inadequate logistics and low prices, but both of those are showing signs of improvement. Infrastructure is improving and more grain is now heading north to the Amazon River and the "Northern Arc of Ports." Numerous corn-only ethanol facilities are being constructed in central Brazil, which should help to support local corn prices.

Additionally, Brazilian farmers do not have to clear new land or reduce the acreage of another crop in order to increase safrinha corn acreage. The acreage is there for the taking after the first crop of soybeans are harvested. Therefore, as the soybean acreage increases in central Brazil, so too does the acreage available for safrinha corn production. If the financial incentives are there in the form of acceptable corn prices, I think Brazilian farmers will continue to increase their safrinha corn acres at a much faster rate than what is estimated by the Agricultural Ministry.