This year’s wealth of soybeans from South America will rival for international market share. Weaker South American currencies, good weather, an expanding infrastructure and historically low freight rates all play a role in Brazil and Argentina’s competitive edge. To top it off, China will continue to be a voracious buyer of soybeans in 2016.
“China is loaded up with corn, but it does not have enough beans,” says Joe Lardy, research manager for CHS Hedging. “China has implemented a plan to become independent in corn at the expense of soybeans.”
In 2015, China imported 81 million tons of soybeans. This year, Lardy anticipates China will buy 82.5 million tons of soybeans.
Despite the world’s appetite for soybeans, global stocks-to-use ratio is 25.2%, down only slightly from this past year’s 25.7%, but still much higher than 2011/12’s level of 20.9%.
As of mid-February, soybean harvest in Brazil is on track. Argentina’s weather has been ideal, but farmers there won’t start harvest until April.
Argentina recently decreased its export tax on soybeans from 35% to 30%, making the country’s soybeans more competitive. In mid-February, Argentine soybeans were bringing $327 per ton; Brazilian soybeans, $333; and U.S. soybeans, $345. Argentina is in the process of phasing out its export tax on corn and wheat.
South America’s infrastructure is expanding as well. Recently, northern ports at the mouth of the Amazon River in Brazil opened. The extension of highway BR-163 from the Mato Grosso region to two major tributaries of the Amazon River, the Tapajós River and the Madeira River, will likely be completed this year.
“When that highway is completed, a lot more beans will be directed to the northern ports,” Lardy adds. “There haven’t been any major strikes this harvest, which are typically the first snarl up. What we have seen, though, are steady rains in January, which slowed early shipments, creating a backlog at southern ports.”
Corn harvest in South America is just around the corner. Full-season corn will be harvested in Brazil as soon as soybean harvest is complete, but 62% of Brazil’s corn is Safrinha, or second-crop, which hasn’t even been planted yet. Together Argentina and Brazil are expected to harvest 111 million metric tons of corn.
“The export season looks more promising for Argentina and Brazil than for the U.S.,” Lardy says.
Harvest Outlook Details What’s at Stake
Not only do yields look promising, but Brazil and Argentina have recent infrastructure improvements and lower prices going for them too.