Year in review: Brazil's 2022/23 soybean crop reaps harvest of records

8 Jan 2024 | Victor Gusmao

Brazil’s 2022/23 soybean crop was marked by new records on production, exports and cash premiums as the country went from a 125.5 million mt production figure in 2021/22, to 154.6 million mt - a 23% increase on the previous season.

The dynamic meant Brazil was a ‘victim of its own success’ according to one industry source, as its unbridled growth in output ran headlong into an uncertain demand environment and logistics headaches.  

And, while weather conditions meant the production was not as big as some had initially expected, the difficulty of handling such large output was exacerbated by logistics bottlenecks that posed great challenges to the sector.

The tone had been set as Brazil’s new season emerged from a 2021/22 crop that had also been marked by production losses - slumping from the initial 142 million mt that had been expected to land, to weigh in at 125.5 million mt, according to Brazil’s national food agency Conab.

With that loss of production, Brazil’s Paranaguá outright spot prices started 2023 at 60 c/bu for February loading over the March Chicago futures contract, while the outright level was at its highest point fo the year, maxing out at $584.25/mt on January 13.

However, the start of the 2022/23 crop harvest pushed prices lower as the market tried to digest what would be a record crop with 154.6 million mt produced.

That took Paranaguá paper market premiums to the lowest level since Agricensus began assessing - and the lowest level since 2014 according to Eduardo Vanin, lead market analyst at Agrinvest.

Agricensus assessed May loading soybeans at a 200 c/bu discount to CME’s May futures contract on April 24.

The outright level reached the year’s lowest a month later, on May 30, when Paranaguá’s June loading was assessed at $458/mt, also the lowest since October 4, 2020.

Logistic struggles

The bumper 154.6 million mt crop was only a partial explanation for the downturn in prices, as logistic bottlenecks also played an important role in the year.

Farmers sold too few beans in advance, reaching January 31 with less than 30% of the 2022/23 crop sold - the lowest percentage in the past 15 years, according to AgRural’s senior market analyst, Daniele Siqueira.

With that, as the harvest began and the crop turned out to be bigger than the 152.3 million mt initially expected, storage problems pressured farmers to sell their production.

“Players are doing all they can to free space in their stocks, but many buyers are not even accepting offers anymore due to the lack of space in their storage,” a source in the logistics department of a brokerage said at the time.

This extra pressure was reflected in prices, as “price doesn’t have much importance, as the logistic and cash needs are forcing farmer’s cooperatives and traders to sell their soybeans”, said Aldo Lobo, Granopar’s market analyst at the time.

However, this intense selling pressure forced ports to go beyond their export capacity, raising the waiting time to load in Paranaguá during the season until it surpassed 43 days in late August - just as the country’s corn exports began to pick up steam.

Such a significant delay meant big waiting times, with buyers incurring extra costs – known as demurrage – in a move that not only saw some trade switch back to the US, as buyers looked to insure themselves against the issues, but which also pressured Brazil’s soybean export prices.

Export records

Nonetheless, backed by such big output and steep discounts, Brazil’s soybean exports set a new record in a single month in May 2023, when 15.58 million mt soybeans were sent abroad.

That was 8.7% higher than the previous record of 14.96 million mt, registered in May 2021, according to Brazil’s Economy Ministry data.

With that, Brazil exported a record level of 101.85 million mt of soybean during 2023, 18.3% higher than the previous record established in 2021, when 86.1 million mt were exported according to the same database.

Of that volume, China took 74.49 million mt - or 73.13% - of Brazil’s total soybean exports, unsurprisingly making it the biggest destination.

In the meantime, Argentina’s crop faced a great setback as drought conditions meant that the country produced only 21 million mt, 56.25% lower than the 48 million mt from initial expectations.

This opened a door that allowed Brazil to export to Argentina, leading the country to send an absolute record volume across the border to its neighbor, of 4.02 million mt, 512% higher than the previous mark of 656,612 mt registered in 2018, again according to Brazil’s Ministry data.

Prices recovery

Heading into the last quarter, the recently sown 2023/24 crop started to face weather challenges as excessive rain in southern Brazilian states contrasted with scarce volumes across the main productive state, Mato Grosso.

Both dynamics also led to a delay in sowing, with 65.4% of the expected 45.3 million hectares were already sown by November 19, versus 75.9% of the area sown at the same time of 2022.

That helped stoke a recovery as familiar production fears gripped analysts with Paranaguá premiums reaching their highest level of the year, and January loading assessed at 85 c/bu over CME’s January futures contract.

Despite the rise in premiums, a broader sell off of the global soybean market amid uncertainties over the health of China's demand and question marks over the strength of US biodiesel production capacity meant that the outright level came in at $513.25/mt.

“Brazil was a ‘victim’ of its success with a very good crop - great volumes produced - lower storage capacity and low forward selling,” Siqueira said in summary.