Commodity Surplus Lesson Hitting Brazil

With the harvest accelerating across the U.S., the world’s top producer, the season is just beginning in the Southern Hemisphere. Farmers in Brazil, the largest exporter, are set to boost output to a record for a third straight year, compounding the biggest global surplus ever. Soybean prices have tumbled into a bear market in the past five months, touching a four-year low, leaving some growers unable to find buyers.

It now costs about 46 reais to produce a 60-kilogram (132-pound) bag of soybeans, or $8.55 a bushel, in Mato Grosso, which accounts for 30 percent of Brazilian output, according to data from the Mato Grosso Institute of Agricultural Economics. Buyers are offering 39 reais a bag for delivery in March, after the harvest. Because most farmers bought seed and fertilizer when prices were higher, planting in the state probably will still rise by 4.3 percent to a record, the institute said.

Brazil’s production may jump 7.3 percent to 92.4 million metric tons in the current season, topping the 86.1 million harvested a year earlier, government forecaster Conab said on Oct. 9. Output has almost quadrupled in the past two decades. Farmers converted rain forests and tropical savannas into soybean fields as surging demand in China, the largest importer, helped send global prices to records as recently as 2012.

While prices remain almost twice what they were a decade ago, output is overwhelming demand. U.S. production will surge 17 percent to 106.87 million tons, leaving global inventories before next year’s harvest at 90.67 million tons, up 36 percent from a year earlier, the U.S. Department of Agriculture said Oct. 10. The surplus will equal 31.9 percent of global demand, up from 24.5 percent a year earlier and the most ever, the USDA said. Harvests are up 30 percent in the past three years, while demand rose 10 percent.

“The Brazilian farmer has yet to wake up to the new reality of big global supplies,” Pedro Dejneka, managing partner in Chicago for Agr Brasil, a unit of AgResource Co. “They are still suffering from a China-demand fever. It’s not in the cards that global demand will be strong enough to offset the increase in world production.”

via Bloomberg

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