Turmoil in South America threatens soybean crop

South American soybean yields could be down in 2018-19 for a variety of reasons, says an analyst.

Weakening currencies in Brazil and Argentina mean imported fertilizer will be more expensive this year.

In Brazil, an 11-day trucker strike in May resulted in the government agreeing to allow truckers to charge higher freight rates. That will further drive up fertilizer costs because imported product has to travel from port to the interior of the country by truck.

It will also increase the cost of getting soybeans to market. The National Association of Grain Exporters in Brazil estimates the cost of transporting grain to port will rise by 20 to 40 percent and drive down soybean prices by 60 cents to $1.20 per bushel at the farmgate.

Michael Cordonnier, who runs the Soybean & Corn Advisor website, said soybean farmers in Argentina have another reason for cutting back on inputs: the government recently hiked the country’s prime interest rate to a whopping 45 percent. Bank rates are higher than that.

“It’s all in an effort to keep the peso from getting even weaker,” he said.

“This is going to make loans very expensive.”

For all of those reasons, he expects South American farmers to cut back on fertilizer when they plant their soybean crops this fall.

Soybean planting starts in September in Brazil. Cordonnier is forecasting a three to four percent increase in acres but he doubts the country will produce its third consecutive record crop because of the cutback on fertilizer.

What could really drive yields down is an Aug. 3 ruling by a Brazilian judge calling for an immediate ban on glyphosate use.

“It’s an extremely consequential decision,” said Cordonnier.

“It could ruin people’s businesses.”

Brazil’s minister of agriculture and its solicitor general are reportedly going to appeal the ruling before the 30-day window for appeals runs out.

Ninety-five percent of Brazil’s soybeans are Roundup Ready varieties, and the chemical is used for pre-seeding burndown of weeds in no-till operations. Many of the country’s soybean farmers no longer own plows or discs.

Cordonnier said it would be a disaster if the ruling stays in place through the planting season.

“There is no alternative. It would be a mess,” he said.

Argentina’s soybean crop is planted in November, and Cordonnier doesn’t know what to expect for acres.

On the one hand, the country’s faltering currency and exorbitant lending rates would tend to support higher soybean acres because corn is the more expensive crop to plant. It uses more fertilizer and farmers can’t use saved seed.

On the other hand, a recent government policy change might make farmers reluctant to plant the oilseed.

Argentina has suspended the gradual reduction in export taxes on soybean oil and meal for six months, while the 0.5 percentage point per month reduction on soybean seed taxes remains intact.

For years, the tax on oil and meal has been three percentage points lower than the tax on seed. That locked in an automatic three percentage point profit for the country’s crushers and made Argentina the world’s largest exporter of oil and meal.

But by the end of 2018 the tax on seed, meal and oil will all be identical at 23 percent, which is going to hurt the country’s crush sector.

Cordonnier said crushers are already operating at about 60 percent capacity due to a poor 2017-18 crop caused by the worst drought in modern history. He thinks it will drop to 50 percent by the end of 2018 because of the new export tax structure.

The policy change was made to appease the International Monetary Fund, which recently provided Argentina with a three-year, US$50 billion loan. One of the conditions of the loan was that the government had to increase its revenues or decrease its expenses.

Farmers in Argentina are worried the government will suspend the gradual reduction in soybean seed export taxes starting in 2019 to further bolster its revenues.

“I now think this might favour maybe some more corn production in Argentina,” said Cordonnier.

About the author

Comments

Markets at a glance

Copyright © 2018. All market data is provided by Barchart Market Data Solutions. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. To see all exchange delays and terms of use, please see disclaimer.

explore

Stories from our other publications