Brazil's Crop Expansion at Risk as China's Soybean Demand Declines

Brazil: Early this century, booming Chinese demand for Soybeans propelled considerable crop development across the Americas, but while Brazil's leading exporter's production is expected to increase even higher, Chinese import growth has slowed.

By the middle of 2024, this dynamic is predicted to have increased global Soybean stockpiles to record levels, including above-average but not record stocks-to-use, a metric that compares supply and demand.

Prices for Soybeans around the world have dropped dramatically in recent months and are now significantly lower than they were two years ago. However, if prices keep down, Brazilian farmers might not be as motivated to expand the region when planting season starts later this year, especially if the major importer is less active.

The U.S. Department of Agriculture pegs Brazil's 2023 Soybean crop at 155 million tonnes, an 11% increase over the previous record. Prior to 2017, production had never surpassed 100 million tonnes, but according to the USDA, the 2024 crop will reach a record-breaking 163 million tonnes.

This includes a 4.3% increase in the harvested area, which is just below the 4.5% recent five-year average. Soybean profitability in Brazil could drop again in 2024 to levels last seen in the late 2010s, when the average annual area expansion was less than 3%.

The 2023 Soy crop in Brazil has been slow to sell due to falling prices, and the 2024 crop might be less interesting. Soybean crop, the smallest amount in more than five years and less than the average and 23% from the previous year.

Brazil last harvested fewer soy acres than the year before in 2006-2007, so it is expected that acres will increase, albeit to what extent is uncertain.

With the 2024 Brazilian and Argentine harvests included in the 2023–24 marketing year, the No. 2 Soy exporter, the United States, is now projected to reach a record 122.7 million tonnes in 2023. If Argentina's yields recover to average in 2024, the crop may be nearly twice as huge as it was before the drought calamity this year.

Strong bean harvests in the three exporting nations in 2023–24 could increase global production by around 11% from this year, the highest yearly gain in seven years.

During the first decade of the 2000s, China's imports of Soybeans multiplied five-fold; but, later in the 2010s, demand growth started to level down. Soy consumption was severely interrupted by the 2018–19 African swine fever outbreak in China's hog herd, but recovery has been uneven ever since.

Although there was another decline in soy consumption in 2021–2022, the decline in 2018–19 marked China's first annual decline in 15 years. The economic recession and China's zero-COVID regulations, as well as the country's dismal Brazilian harvest and near-record Soybean prices in the middle of 2022, were all factors.

The USDA announced last month that China will import 100 million tonnes of soy in 2023–24, up from 98 million in 2022–23 but only just exceeding the previous high of 99.7 million from 2020–21. Although the 2023–24 global harvest is anticipated to be 17% larger than that year, that would be 7% more than in 2016–17.

According to estimates, domestic demand is expected to reach a new high of 118 million tonnes in 2023-2024, with an increase of 4.7%. This is the largest jump in four years, but it falls short of the projected global demand growth of 5.9%, which is set to reach a nine-year high. By the middle of the 2010s, China's consumption of Soybeans was growing by more than 8% annually.

China has been loosening regulations on the use of Soymeal in animal feed for several years to reduce its dependency on imports. Maize and Soymeal were being replaced with abundant, inexpensive wheat from China in feed rations as of last month, which reduced the requirement for Maize and Soy imports.

However, the continuous torrential rains in the province that produces most of the China's wheat may have destroyed up to 20 million tonnes of the grain, which represents a sizeable chunk of the anticipated 137 million-tonne crop.

Although sprouted grains can be used in cattle diets if they are not overly damaged, such wheat would not be fit for human consumption, thereby increasing pressure on China's demand for Soybeans and Maize.