May 07, 2020
Brazil Crushers Compete with Exporters for Tight Soy Supplies
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
As Brazilian soybean exports set records month after month, domestic crushers are facing tighter margins as they compete with exporters for dwindling supplies of soybeans. Brazil's soybean exports were over 14 million tons in April and they might be 12 million tons or more during May. The weakened Brazilian currency and strong demand from China have kept Brazilian soybean exports at a very high level.
This is not good news for domestic crushers who must compete with exporters for available supplies. On Wednesday of this week, spot soybean prices at the Brazilian ports of Santos, Paranagua, and Rio Grande were in the range of R$ 106.00 to R$ 108.00 per sack(approximately $9.60 to $9.80 per bushel). For delivery in February of 2021, the prices are in the range of R$ 103.00 to R$ 105.00 per sack (approximately $9.35 to $9.50 per bushel).
Brazil's soybean exports will start declining in June and July as supplies get tighter. For crushers to compete with exporters for available soybean supplies in August for example, they would probably have to pay R$ 112.00 per sack (approximately $10.15 per bushel). That is the opinion of the consulting firm Agrinvest Commodities. The high price alone would result in poor margins for crushers, but couple the high prices with softer demand for meal and oil, it could make the situation even worse.
As a result, Agrinvest Commodities feels that the amount of domestic crush in Brazil in 2020 will be down from initial estimates of 44 million tons to 41 million tons. The lower crush will be the result of several factors including: a significant downturn in the Brazilian economy due to the Covid-19 pandemic, a weaker feed sector, and reduced demand for biodiesel where soybean oil constitutes 80% of the vegetable oil used in biodiesel.
Agrinvest Commodities thinks that China is well covered for soybeans until mid-August, but between mid-August and mid-January when the 2020/21 Brazilian soybean crop starts to come on the market, China will be forced to purchase at least some soybeans from the United States. How much they purchase remains to be seen.
In the meantime, Brazilian crushers will have to pay more to keep available soybean supplies in-house.