Brazil’s over-performing soy crop may keep padding global stocks

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Last year, Brazil raised a soybean crop exceeding 160 million metric tons, nearly doubling the decade-ago levels as the top exporter expanded production to meet rising global demand.

That is a significantly larger volume than analysts, including U.S. and Brazilian agencies, originally expected prior to last season. That trend that could continue this year, though it is unclear whether that excess supply will manifest next month or many months from now.

Brazil’s current soybean harvest should be smaller than last year’s due to unfavorable weather, and the differing crop size opinions between the U.S. Department of Agriculture (USDA) and its Brazilian counterpart Conab have been well publicized in recent months.

This was one of the recurring discussions during USDA’s biannual data users’ meeting on Tuesday. USDA’s 2023/24 Brazilian soy crop peg of 155 million metric tons sits 8.5 million tons above Conab’s, and meeting participants questioned this historically large deviation.

USDA officials stressed that usage data, including domestic crushing and exports, warranted the larger production estimates for both this year and prior years. Its 2022/23 soy crop figure of 162 million tons is 8 million tons larger than the year-ago estimate, an unusual retrospective increase.

Separately on Tuesday, Brazilian oilseed lobby Abiove seemingly bolstered USDA’s argument by revising the 2022/23 soy harvest upward by at least 1.2 million tons to 160.3 million tons. USDA uses Abiove crush data and official export data to reconcile production assumptions.

Conab’s 2022/23 soy figure of 154.6 million tons is now more of the industry outlier, and that estimate has not materially changed since July. USDA does not necessarily adopt Conab figures, and the two agencies maintain differences for previous soybean and corn harvests, USDA being higher.

Bigger than we think?

In May 2023, USDA’s first official projection of the 2023/24 Brazilian soybean crop was 163 million tons. Weather clipped that potential several months later, but a USDA representative in Tuesday’s meeting said last year’s starting point would have been higher than 163 million tons given today’s knowledge.

The official declined to state how much higher, but both this statement and past estimates suggest USDA’s first cut at 2024/25 production next month could be bigger than many expect. This is especially the case when looking at USDA attache forecasts, typically issued in March or April for the new crop year.

For the past four years, USDA’s initial May estimate has been higher than the attache’s outlook with a maximum gap of 10 million tons in 2022/23. Official USDA estimates do not have to agree with the attache ones.

In March, the attache placed Brazil’s 2024/25 soybean harvest at 157.5 million tons, up 3% from 152.6 million tons in 2023/24. A similar year-on-year increase for USDA’s official 2023/24 view of 155 million tons would place the 2024/25 outlook near 160 million tons.

Analysts are not polled for new-crop Brazilian production in May, though new-crop world soybean stocks in May have recently come in heavier than expected, potentially reflecting too-light South American assumptions.

High production costs, low crop prices and thin margins could limit USDA’s starting estimate for Brazil’s 2024/25 harvest next month as farmers may not be as incentivized as in past years to expand their growing area.

If USDA chooses a more conservative approach next month, that could defer a potential 2024/25 Brazilian soybean crop surprise to 2026 or beyond, long after the market has moved on from the topic.

But in that case, the global balance sheets might serve as a reminder.

Source: Reuters