South American Agricultural Analysis and Its Impact on U.S. Soybean Farmers

South American soybean farmers produced 952 million fewer bushels during the 2008-2009 season than they did the previous year. Estimates for the current crop season are 3.427 billion bushels, versus 4.379 billion bushels during the 2007-2008 season. Farmers expect to produce 1.343 billion bushels of soybeans in the coming season, for a year total of 4.777 billion bushels.
South American farmers faced the worst drought in decades during the 2008–2009 season, with farmers in Argentina, Paraguay and Bolivia faring the worst.

Argentina faced the worst of the worst, producing 40 percent less soy than in the previous year. Current estimates show farmers produced 1.088 billion bushels this year, versus 1.808 billion bushels produced in 2007-2008. The 720-million-bushel decrease directly impacts Argentina’s soy oil supply. However, the level reached within the first eight months of accrued crushing in January/August 2009 was quite similar to the one attained during the same period the year before. This year, the oil industry processed 751 million bushels versus 764 million bushels processed during the previous year. However, production decreased by 720 million bushels, and that is why we think a sharp decline in the industry volume shall take place by September/December 2009. This major decline is why it should be expected that the world will demand a greater amount of processed products from the United States. American industry should prioritize soybean oil and soybean meal exports rather than the export of beans. The decline in the production and offer within the South American soybean scenario will have a significant, positive effect on the North American market within the next trimester (Oct./Nov./Dec.) and the first trimester of 2010 (Jan./Feb./March).

Brazil’s soybean production activity 2009-2010 is projected to reach 2.370 billion bushels, versus 2.100 billion bushels in 2008-2009. With this production level, Brazil projects its soybean exports to reach 1.010 billion bushels, which represents an increase of 110 million bushels over the previous crop. This increase in exports will likely compete with exports from the United States from February and March 2010. From September 2009 until February 2010, the United States will face little competition from South America.

Just like Brazil, soybean oil and soybean meal produced in Argentina are expected to compete within the global market beginning in March 2010.

For the next 2009-2010 South American soybean crop, a 1.343-billion-bushel harvest is expected, with the soybeans getting to the global market in March 2010. This is why we think that from the second trimester in 2010, the historic crop volume in South America shall have a bearish effect on Chicago. As every year, Brazil shall compete with the United States for the soybean market, and Argentina shall compete for soybean oil and meal exports.

During 2009, soybean production in the United States equaled 87 percent of the whole soybean production in South America. Therefore, U.S. farmers had a greater participation within the global market, causing soybean prices to rise during the first part of 2009.

For the new 2010 crop, soybean production in the United States is projected to be equal to 68 percent of the whole soybean production in South America. This means that in 2010, the market shall depend more on South American soybean exports, rather than on soybeans coming from the United States. Until South American soybeans get to the market in March 2010, global demand shall be focused on the offer by the Mexican Gulf.

Current analysis shows for the first time in history, a record soybean crop in South America should have a bearish effect on future soybean pricing. However, once the pressure cropping puts on farmers is over, political uncertainty in Argentina and better sales pricing needs by Brazilian farmers may have a declining effect over the offer; and this may have an increasing effect over future pricing. To conclude, there is a potential bearish effect on soybeans during March/April/May 2010, and there is also a potential rise in prices in June and July.

posted by Expert 12:42 pm