Overflowing with oil seeds

by Chris Lyddon
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If someone had suggested a few years ago that one South American country would overtake the U.S. as the world’s biggest soybean exporter, few would have believed it. Yet the role of the continent in the world’s oilseeds market is massive and growing.

The International Grains Council’s (IGC) Grain Market Report forecasts a total soybean crop of 160.3 million tonnes in 2014-15, compared with 154.6 million the year before. The biggest producer is Brazil with a crop forecast of 91 million tonnes, up from 86.1 million, followed by Argentina at 55 million tonnes, up from 54.5 million in 2013-14. Bolivia’s crop is forecast 2.5 million tonnes, up from 2.3 million, while Paraguay’s crop is put at 8.2 million tonnes, from 8 million. The IGC also separates out Uruguay with a crop of 3.4 million tonnes, down from 3.5 million.

The report noted some weather problems in 2013-14. “In Argentina, harvesting has been impeded by overly wet conditions,” it said. “Although the Buenos Aires Grains Exchange estimates that more than 800,000 hectares of the sown area will likely be abandoned due to excessive moisture, higher than anticipated yields for late planted areas should more than compensate.”

The IGC sees South America’s large crops contributing to a rise of 4% in global soybean consumption, to a record 282 million tonnes in 2013-14.

“In the first four months of the local marketing year (February/January), shipments by Brazil totaled an unprecedented 24.9 million tonnes, 27% higher than in the same period of the previous year,” it said. “However, the pace of exports will slow, especially as maize shipments accelerate. Nevertheless, at 45 million tonnes, exports would still be a new record.”

The IGC points out that what South American farmers plant later this year for 2014-15 will depend on production outcomes in the northern hemisphere and international values, along with a number of other factors.

“These include the macroeconomic environment, the need for adequate crop rotation and the impact of a potential El Niño event,” it said. “Sowings in Brazil will not commence until after the expiry of the soybean free period – a 90-day timeframe beginning on June 15 during which no ‘live soybean plants’ are permitted in 11 states in order to counter the spread of soybean rust from one growing season to the next. Assuming prices remain relatively attractive, sowings in Brazil are projected to expand further, as production increases to 91 million tonnes, up from 86.1 million last year. In Argentina, output is tentatively seen fractionally higher at 55 million tonnes.

It forecast Bolivia’s 2014-15 crop at 2.5 million tonnes, up from 2.3 million the year before. Paraguay’s crop is predicted to rise to 8.2 million tonnes from 8 million while Uruguay’s will fall to 3.4 million tonnes from 3.5 million.

Brazil top exporter

Brazil’s soybean exports in 2014-15, according to the IGC, will be 44 million tonnes, narrowly beating the U.S. which will export 44.2 million to be top exporter worldwide. The previous year’s soybean exports from Brazil were 44 million tonnes. Argentina is forecast to export 9.5 million tonnes of soybeans up from 9.3 million, while Paraguay is set to export 4.4 million tonnes, up from 4.3 million.

One of the speakers at the recent IGC’s annual conference was Brandon Crozier, Chief Executive Officer, Nidera Brazil & EVP of Americas, based in Brazil. He started by looking at how Brazil’s soybean exports have grown over the past couple of decades. China, which approved GMO imports in 1997, represented just 4% of the Brazilian soy complex’s exports in 1999, compared with the 80% share of the E.U. In 2001, China joined the WTO. In 2003, the first transgenic beans were planted in Brazil. By the end of 2003, the E.U. represented 64% of all Brazilian soy complex exports compared with 18% to China.

China’s President visited Brazil in 2004 to secure supplies of commodities and in 2006, Brazilian soybean exports to China surpassed those to the E.U. “At the end of 2008, the E.U. represented 52% of Brazilian soy complex exports versus 32% to China,” he said. In 2009, Brazilian soy complex exports to China surpassed exports to the E.U. “In 2013, China represents 58% of Brazilian exports versus 26% to the E.U.,” he said.

An annual attaché report from Brasilia emphasized the importance of Brazil’s soybean production and trade in the world. “2014-15 soybean production is forecast to increase by 8%, reaching a record 97 million tonnes, based on steady increases in planted area and yields,” it said. “Brazil will continue to vie with the United States as the largest soybean producer in the world. With 2014-15 exports forecast at 50 million tonnes, Brazil is poised to continue as the world’s largest soybean exporter, based on augmented available supplies and strengthened export capacity. 2013-14 production estimate is lowered to 88 million tonnes, and exports are estimated at 45 million.”

The attaché noted Brazilian farmers’ eagerness to adopt improved biotech varieties.

“In general, producers were very pleased with the new seed genetics available on the market,” it said. “China’s approval of new varieties developed through agricultural biotechnology opened the possibility for several new varieties to be planted. Unfortunately, there was not sufficient time for seed multipliers to produce enough of these new varieties to meet market demands.

“Nevertheless, producers used the opportunity to experiment with these new varieties. Across the board, farmers noted the additional pest control — especially protection against the helicoverpa caterpillar — and yield increase. Based on farmers’ desires for seeds, these new varieties could see their use double in the next harvest.”

Brazilian producers are also pushing forward with irrigation. “Possessing 20% of the planet’s fresh water, Brazil has tremendous potential to expand planted area via irrigation projects that make possible second and third crops rotated over a yearly growing season,” the attaché said. “Currently, about 8.3% of all cropland is under irrigation, which represents 4.5 million hectares. The vast majority of soybeans under irrigation are for seed production. Recent historically high crop prices have greatly improved the timeframe for return on investment with the main constraints being water use licenses and capital investment requirements. Large irrigation project investments are increasing soybean planted area.”

Brazilian producers have had to fend off accusations that the industry is damaging the Amazon rainforest. Industry body ABIOVE moved to refute press reports earlier this year.

“The results obtained in the Soy Moratorium’s sixth monitoring cycle in 2013 showed that soybean planting occurs in just 0.7% of the Amazon Biome’s total deforested area,” it said. “Therefore, soybeans are not a relevant vector in deforestation. Ninety-nine percent of the deforestation in that Biome is the result of other productive activities, such as agriculture and livestock farming, settlements under the agrarian reform program, inadequate forest management, steel industry (coal), civil construction, furniture industry and real estate speculation.”

Argentinean production to rise

USDA officials in Argentina predict a rise in soybean production. “For marketing year 2014-15, the USDA forecasts soybean area to increase to 20.6 million hectares with production estimated at 57.5 million tonnes,” their annual report said. “Sunflower area is estimated to recover slightly to 1.55 million hectares and peanut area will remain stable at 340,000 hectares.

“Soybeans continue to be the ‘safe’ and ‘easy’ crop. Input costs for soybeans are lower than for other commodities. For example, it cost more than twice as much to produce corn than it does to produce soybeans. Furthermore, the margins for first crop soybeans are higher than any other crop grown in Argentina. Although export taxes are high, there are no export restrictions or quotas for soybeans as there are for grains.”

The attaché in Buenos Aires also produced an annual report on Paraguay’s oilseeds sector. “Paraguayan soybean area is estimated to increase by 3% to 3.2 million hectares in the 2014-15 marketing year with production reaching a record 8.7 million tonnes,” it said. “Soybean production has changed Paraguayan agriculture. In the past two decades, area dedicated to the crop has tripled, growing steadily at an average rate of 6% per year.”

There is plenty of land in Paraguay and production could expand to 4 million hectares in the next five to 10 years, the attaché said. “The additional area will come from pasture land that remains in the main production region of eastern and southeastern Paraguay and from growth in the northeastern provinces of San Pedro, Canindyú, Caaguazu, and Concepción.”

It also noted an increase in crushing capacity. “In the past two years, crushing capacity has more than doubled in Paraguay,” it said. “Previously, more than three-quarters of Paraguay’s soybeans were exported as whole beans, but by next year, more than half will be processed in-country and then exported as meal and oil.”

Crush capacity in 2014-15 was estimated to be over 4.5 million tonnes, compared with 1.8 million two years earlier. “There has been an enormous amount of investment in the crushing industry with two new large plants recently constructed,” it said. “Both an ADM crushing facility with 1.2 million tonnes crush capacity and a joint project by Louis Dreyfuss, Bunge, and Copagra (CAIASA) with crush capacity of 1.1 million tonnes are operating at full capacity this year.”

The attaché actually predicts reduced area for Uruguay. “Producers are expected to rotate more corn, sorghum and winter crops to meet the requirements under the natural resources management plan for soil erosion management and water conservation,” an annual report on the sector says.

“Historically, the crushing industry in Uruguay has been marginal as the majority of Uruguay’s production is exported as whole beans,” it said. “This is a changing scenario as new crushing facilities and biodiesel plants have been constructed to help meet the national biodiesel mandate.”

Even so. almost 95% of the crop goes abroad as beans, with China a major customer, taking three-quarters of exports.

Chris Lyddon is World Grain’s European editor. He may be contacted at: chris.lyddon@ntlworld.com.