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July 13, 2016

Is It Possible that Brazil Could Run Out of Soybeans??

With surging exports and declining production, the soybean carryover stocks in Brazil are expected to be precariously small, just 0.45 million tons, or less than a week supply of soybeans. I do want to be an alarmists, but Brazil ran out of corn this past spring and a similar situation is starting to set up for soybeans as well.

In their July report, Conab commented on the domestic soybean supply situation. The Export Secretary (Secex) estimated that June soybean exports would be 7.76 million tons. Soybean exports thus far in 2016 are estimated at 38.57 million tons or 20% more than during the same period in 2015. The domestic prices for soybeans in Brazil reflect these tight supplies. The average price paid in June for available soybeans is 58% higher than last year in Sorriso, Mato Grosso and 44% higher in Cascavel, Parana. Domestic prices for available soybeans hit an historical high level in June. Conab expects the domestic prices to continue strong due to the expected tight supplies.

The timing of the planting of the 2016/17 soybean crop in Brazil is going to be very important. The carryover stocks are going so be so tight that any delay in planting will make a very tight situation even tighter. The concern is that La Nina could delay the soybean planting because La Nina generally correlates with dryer than normal conditions during September-December in southern Brazil.

Brazilian farmers are allowed to start planting on September 15th, which is the expiration of the soybean-free period. If there is adequate soil moisture, farmers will plant early-maturing soybeans as soon as possible after that date and those soybeans will be ready to harvest about the end of December. If the planting is delayed for several weeks by dry weather, the market will have to ration demand with even higher prices to extend the limited supplies.

The bottom line is that domestic soybean prices in Brazil are expected to remain strong, which in turn, could limit soybean exports later this year due to the potential urgent need to supply the domestic market. If there is a delay in getting the 2016/17 soybean crop planted, it would drive the domestic price even higher and also delay the start of the soybean exports in early 2017.