Recent forecasts for the Brazilian soybean crop have been falling, with the USDA currently projecting production at 117 million tonnes and CONAB at 115.3 million tonnes. Both of these estimates are down from last year’s record production of 120.80 million tonnes.
The USDA Foreign Ag Services is estimating exports for the local growing season, February through January, at 70 million tonnes and CONAB came in at 71.5 million tonnes. Further cuts to the Brazilian soybean crop could place more pressure on export forecasts going forward.
Dry weather in Brazil has not only cut production expectations, but has also accelerated the soybean harvest pace. According to Brazil consultancy AgRural, the Brazilian harvest is 26 percent complete versus the five-year average of 12 percent. Because of the rapid pace of field work, early-marketing year soybean loadouts from Brazil have been explosive.
According to our data, the week-seven loadout rate hit a 2019 high of 1.5 million tonnes, which is the highest loadout rate since week 46 of 2018. Assuming the balance of February loadout rate looks like the first half of the month, we expect February shipments to reach at least 6 million tonnes - which would be a record for the month. This rate of loadout will dramatically increase over the next 4-5 months before it peaks.
Medium-to long-term market participants should be cognizant of the potential risk of a much lower Brazil loadout rate in the second half of 2019, especially quarter four, which could be to the benefit of the United States. A number of factors including the easing of US/Chinese trade tensions, continued strength in “other importer demand” and the restocking of Chinese domestic soybean reserves could prove to be powerful market factors that could result in much stronger US soybean demand when compared to the 207/18 marketing year. Importantly, in the absence of Chinese demand for US soybeans, global soybean offtake from all other regions of the world in the first seven weeks of 2019 is up 81.7 percent from last year.
We forecast the Brazilian first quarter 2018/19 marketing year loadout at around 27 million tonnes, and first-half marketing year loadouts should reach about 51.5 million tonnes. This first-half rate represents a 19 percent reduction in the Brazil loadout from 2017/18. Last half 2017/18 loadout came in at 31.7 million tonnes, but this figure is unlikely to be matched in 2018/19 given the smaller crop and rapid loading pace on the front-end.
Given our forecast for exports in the first half of the 2018/19 marketing year at 51.5 million tonnes, against a 70 million tonne yearly estimate from the USDA Foreign Ag Services office, a reasonable expectation for the second half of the marketing year loading is 18.5 million tonnes, down 40 percent from the same period in 2017/18.
There remains short-and medium-term headwinds for US soybean export demand, both from a seasonal and structural perspective, especially into mainland China. For the time being at least, the window of opportunity appears open for US exporters to capitalize later this year, given the global market is not set to experience the same supply-side excess from Brazil as experienced last year.