Brazil, the world’s second largest soybean exporter, is nearing the end of the 2013/2014 season harvest crop and the outcomes are shaping up to be worse than expected — a new indicator that adds onto the list of the country’s overall economic difficulties. The Association of Vegetable Oils Industries (Abiove) expects Brazil to export 43 million tonnes of soybeans this year, a downward revision from its forecast of 44 million tonnes in March. The association cited weaker Chinese demand, the top-buyer of Brazilian soybean, as the principle reason for the downgrade.
This highlights, again, the overall weaker data in the South American country off the back of China’s reduced commodity demand and current economic difficulties. According to Reuters, Shandong Sunrise Group (China’s biggest soy buyer) may default on a further 1.2 million tonnes of soybeans worth approximately $900 million shipped from the United States and South America, to avoid incurring huge losses. It’s also important to note that China has recently closed two big agribusiness related ventures when it acquired the majority stake of the agricultural commodities unit of Noble Group and commodities trader Nidera NV — as it tries to become less dependent on other markets and strengthen its position. (Read more: China takes another giant step in global agribusiness push).
Abiove, which represents the top international soybean crushers operating in Latin America’s largest economy — including global agribusiness players as ADM, Bunge Ltd, Cargill Inc and Louis Dreyfus Corp — maintained its forecast for production at a record 86.1 million tonnes. Curiously, the dry spell that the country has experienced and which has afflicted some areas from December to February wasn’t a concern for Abiove. Even as the country saw a rainy March, the U.S. Department of Agriculture, downgrade of 1 million tonnes to 87.5 million tonnes in its most recent forecast for Brazilian soybean production for the season also shows that climate-related issues have hit its output. On its behalf, Brazil’s crop supply agency, Conab, cut its forecast to 85.4 million tonnes in March. The good news is that the agency predicts a sharp rise in output next season, to 97 million tonnes, a record for any soybean harvest anywhere, thanks to an increase in sowings of more than 2.3 million hectares, and a boost to yields from improved seed. This will likely boost soy exports from Brazil as well.
The 2013/14 harvest season is nearly done with around 10% of production still standing in the field. Brazil is a global agricultural powerhouse and many industry analysts predict that it will take on a larger share of the world’s food production in coming years. The farm sector has been a rare bright spot in Brazil’s hesitant economy but that could quickly fade away. At least they are holding onto the idea that the demand for these products will increase when the World Cup takes place in June. Will it be enough to not become another political and economical issue ahead of the October presidential elections?