The soybean yield in Brazil is currently under threat due to a prolonged period of heat and dryness, particularly in the states of Mato Grosso, Mato Grosso do Sul, and Bahia. These conditions have raised concerns about the potential shortfall in production.
The USDA's projection of a record soybean yield of 163 million metric tonnes in Brazil is at risk. A 5% yield loss, which is a likely scenario given the current conditions, would reduce the output to approximately 156 million tonnes. This potential decrease in soybean production in Brazil is a significant matter for the global soy market, as Brazil is one of the leading exporters of soybeans.
The Chicago soybean futures market is closely watching these developments. The current estimation by some US analysts, such as Ag Resource, places the fair value of soy at US$13-14 per bushel, in the same zone where it is now.
That value is subject to increase though, potentially reaching $14.00-15.50, if the adverse weather conditions in South America continue. Such fluctuations in Brazilian soybean production significantly influence global supply chains and pricing strategies.
Brazil's corn production is also facing similar challenges. The increase in US output this year, along with Brazil's expanded area and trend yield, was initially forecasted to bolster major world exporter corn stocks to 11.9% for 2023/24. This would be the highest since 2017/18.
However, if Brazil's National Supply Company (CONAB)'s estimate of a 119 MMT corn crop is accurate, and if safrinha (second crop) yields are down by 5% from the trend, the exporter corn stocks/use ratio could drop to as low as 9.6%. This scenario would not necessarily lead to exorbitantly high corn prices but would increase the fair value to around $5.50-6.00 per bushel, suggested Ag Resource recently in a report.
The role of Brazil in the global food supply chain cannot be overstated. What happens there has a ripple effect on global food markets, influencing prices and availability. This means that, even amid plenty of uncertainty, Canadian farmers should keep an eye on what’s happening in Brazil.
