Fears of a record breaking global soybean harvest, and insufficient demand

Fears of a record breaking global soybean harvest, and insufficient demand

The average estimates by several consultants has Brazil, world’s top soy supplier producing a record 152 million tons of soybeans, up 20% year on year.

Brazil is on track for a record-high Brazilian soybean harvest in the marketing year 2022-23 (January-December 2023), based on forecasts from commodity consultancies and government-owned institutions. The likely estimate means a looming oversupply expected to remain until at least mid-2023.

The average of estimates by the various organizations has the world’s top soy supplier producing a record 152 million tons of soybeans in MY 2022-23, up 20% year on year.

S&P Global Commodity Insights projects the Brazilian MY 2022-23 soybean crop at 150 million tons.

Substantial back-to-back supplies from the world’s top two soybean exporters (Brazil and US) are a recipe for a bearish 2023, they said. The US soybean new crop has been estimated at an average 118 million tons, and if Brazil’s record harvest projections are included, an oversupply seems likely.

The US Department of Agriculture has estimated the MY 2022-23 US soybean harvest at 118.3 million tons, close to its 5-year average of 118.4 million tons. Brazil and the US together account for 70% of global soybean production.

Based on estimates, Brazil’s soybeans plantged area has expanded for a consecutive 16th year, which has significantly boosted its production capacity.

Brazil’s national agricultural agency Conab sees the acreage in MY 2022-23 at 43.2 million hectares (107 million acres), up 4.2% year on year, while others are predicting an even bigger area.

Farmers are projected to plant 43.79 million hectares with soybeans this season, an increase of 762,000 hectares from the July forecast and up 1.98 million hectares year on year, according to agribusiness consultancy Datagro.

This acreage increase is experienced in the key growing regions of the north, northeast and center-west rather than displacing other crops, analysts said.

But the euphoria over a forecast record Brazilian soybean harvest in MY 2022-23 is likely to be short-lived, some analysts said. Brazil typically consumes 45/50 million tons of soybeans domestically and exports almost all the rest.

“I am not sure the world needs a 100 million tons of beans from Brazil in MY 2022-23,” said Kory Melby, consultant with Brazilian Ag Consulting Services.

Pete Meyer, head of grain, oilseed, and advanced feedstock analytics at S&P Global Commodity Insights, agreed. “It is unlikely the market will digest a supply surge of 150 million tons early next year”, Meyer said.

However, if the Argentine crop were to fail, then Brazilian farmers could pitch in and export more, he added. Likewise the fate of Brazil’s impending record soybean harvest depends on multiple variables, especially China’s demand.

China is the world’s largest soybeans consumer, accounting for 60% of global trade, and is forecast to import 98 million tons in MY 2022-23, according to USDA data. It has been Brazil’s top export destination for soybeans in recent years.

However, not all analysts see 2023 as a lackluster year for Brazilian soybean trading. Raphael Mandarino, general director at AgResource Brasil, said there is a market for Brazil’s 150+ million soy crop, both domestically and abroad.

“We do think Brazil can export an extra 15 million to 18 million tons in MY 2022-23,” Mandarino said, adding domestic crushing capacity will increase simultaneously with a higher biodiesel mandate next year.

However, the increase in crush capacity will result in the need to export more soybean meal, which will be an additional challenge for Brazil, said Ricardo Medeiros, another consultant from AgRural.