February 20, 2013
2012/13 South American Exports Could Have Long Tail
The weather in Mato Grosso was dryer last week and as a result, the soybean harvest pace has quickened. Nationwide, the Brazilian soybean crop is approximately 17% harvested with Mato Grosso 29% harvested and Parana 23% harvested. The farmers in Argentina have also started to harvest some of their early planted corn as well.
The export season in Brazil is getting off to somewhat of a slow start, and for a number of reasons, which I will elaborate, it is probably going to end up with a much longer tail than last year. Instead of ending in August and September like it did last year, the Brazilian exports could still be going strong until November or December this year. In Argentina, it's the deteriorating economic situation which could extend their export season.
Reasons for Long Tail to Brazilian Exports
Much larger crop than in 2011/12 - The 2012/13 soybean crop in Brazil is going to be 15-16 million tons larger than in 2011/12 and that fact alone will extend the export season in Brazil. Last year, Brazil produced a much smaller soybean crop and the exports were front-loaded last year due to strong world demand. As a result, the Brazilian soybean exports were winding down in August and September of 2012. With a much larger crop on hand, that is not going to happen this year and I expect Brazilian exports to continue to be strong late into the fall.
Wet weather slowing early harvest - January was a very wet month in central Brazil and as a result, the harvest pace for the early maturing soybeans has been slower than normal. Farmers in Mato Grosso planted more early maturing soybeans than ever, but the wet weather kept the combines out of the fields for much of the month of January. Additionally, the wet weather has led to poorer quality soybeans, some of which have been rejected by the grain elevators. The poor quality has also helped to limit the initial volume of soybeans on hand for early export.
Wet weather slows loading- In addition to slowing the harvest pace, wet weather along the southern coast of Brazil also delays loading activities at the ports. Any time when there is a treat of rain, loading activity must be suspended until the rain threat passes. At the Port of Santos for example, officials at private grain terminals feel they can lose as much as 40% of the potential loading time due to wet weather. That is why the large sugar producer, Cosan, is installing retractable covers that will allow for loading even during wet weather. Unfortunately, no such covers exist at the public berths in Brazil.
Lack of infrastructure improvement - Even though Brazil is on track to produce a record large harvest, there has not been any significant improvements in the nation's infrastructure to help move the larger crop in a timely fashion. In fact, the wait time for vessels at the Port of Paranagua is already ridiculously long at 36 days and it will probably get worse. The new truck driver law in Brazil that reduces the number of hours a driver may be behind the wheel may also extend the time it takes to get this bigger crop to the ports.
The truck congestion is going to be worse this year, the wait times to unload the trucks are going to be longer, and the waiting time for the vessels is going to be longer, etc. All this will add up to an extended period of time to get the soybean exports out of Brazil.
Labor unrest at the ports - Labor unions representing workers at the Brazilian ports are already conducting strikes over the plan by the government to privatize nearly 100 grain terminals at Brazilian ports (see later article). The unions are concerned about wages, benefits, and job security when the port administration is put into private hands. President Rousseff has stated that the administration's plan to privatize the ports will not be detoured by the concerns of the workers and that their rights will be protected. The unions are not convinced that their jobs will be protected and they have meeting scheduled later this week to decide on potential targets for work stoppages.
If they decide to strike, President Rousseff will take a very hard line concerning their demands just like she did last year when federal workers, including grain inspectors, conducted a work slowdown that lasted several months. It was those slowdowns that resulted in waiting times at the Port of Paranagua as long as 60 days.
Large soybean exports could impede early corn exports - A long tail to the soybean exports could also impede some of the early corn exports out of Brazil as well. Last year, Brazil had a much smaller soybean crop and the exports were front loaded to such an extent that by August or September, the ports were wrapping up soybean exports allowing for a rapid ramping up the corn exports. That scenario is unlikely to play out again this year, so Brazilian corn exports will probably start off slower than last year and extend well into the fall.
Reasons for a Long Tail to Argentine Exports
In Argentina the export pace could be determined by how fast the farmers decide to sell their soybeans and corn. There are many financial incentives for farmers in Argentina to be slow sellers such as rising inflation, a weakening peso, and a deteriorating economy. On the other hand, the Argentine government wants the farmers to be fast sellers in order to increase the amount of revenue from the export tax. How this plays out remains to be seen, but I am anticipating that the farmers will sell their crops slower than normal.
In addition to economics, there could also be labor issues that slow the Argentine exports. Certainly, every labor organization in Argentina that is involved with agriculture is going to demand hefty wage increases to keep up with inflation (some private estimates have inflation at 30%). There have not been any labor slowdowns as yet, but their real pressure point comes in a month or two when the exports are ready to move out of the country. In a more normal situation, these labor issues are generally resolved in a number of days, but this may not be a normal year. President Kirchner is not likely to be in a consolatory mood give the depth of economic problems facing her. Therefore, it is more likely that these labor issues will take longer to resolve than in past years.
A leader of the teacher union in Argentina stated over the weekend that the start of the new school year may in jeopardy because the government has only offered a wage increase of 22% to be paid in three installments over the next year. So much for the claim by the government that inflation is only in the low teens!