ANALYSIS - Poor rail, road and harbour networks are impeding oilseed distribution in South American, a major player in the global market, writes Chris Harris.
Speaking at the HGCA Grain Market Outlook conference in London last week, Chris Gadd, grain analyst with Macquarie Securities said that in the 2013/14 season Brazil will have increased production to more than 87 million tonnes of soybeans – a rise from 81.6 million tonnes last year.
Globally, this year the markets have been recovering from a poor soy, sun flower seed and rape production in 2012 and in the US there is a predicted shortfall in production, although there is an improvement in ending stocks in the US as yields are improving.
Early in the year both production and yields of soybeans in the US were predicted to be down, but rain in September and the result of a late planting has now started to see yields up.
“The soybean outlook is hopefully better with yields of 42, 43 or 44 bushels an acre,” said Mr Gadd.
Stocks are expected to remain close to last year’s levels.
There is expected to be some uncertainly in the US stocks of soybeans and oilseed market will be driven by the soybean prices, and weather issues are expected to see another tight balance in the US.
High prices have started to ration demand and while globally production is fairly level, where import markets are going to source soybeans are changing.
China has moved away from buying US beans to buying South American beans, as the US is turning into a domestically oriented market as biofuels and biodiesel are taking more of domestic soybean oil production.
“There are bullish expectations for next year as palm oil becomes less competitive against soybean oil,” said Mr Gadd.
As the US market becomes tight again, the response is expected to come from South America, and Brazilian farmers, in particular will respond to higher price incentives.
Mr Gadd told the conference that Brazil is switching away from corn production to soybean production, with about 750,000 hectares being switched from corn. Brazilian production is also expected to be affected by a devaluation of the Real.
The switch from corn and the reduction in value of the Brazilian Real together with good weather conditions will see yields rise. This together with the pressure on USA production will see Brazilian exports rise if Brazilian logistics allow them to export their potential.
Previously, China was forced to move away from taking product from Brazil and to take more from the US because of the export logistics problems.
The other major producer in South America, Argentina is holding prices up and stock piling product.
The increasing value of the Peso is putting production costs up and forcing farmers in Argentina to stockpile, Mr Gadd told the Outlook Conference.
Much of the future progress of the market depends on the demand in China and over the last few months there have been record levels of imports into China, which have been going into the countries stocks.
Mr Gadd said that in China, the lower hog margins than in previous years could see China move away from the current high imports of soybean meal to other meals.
However, China is expected to become increasingly import dependent as consumption of grains and oilseeds per person continues to grow.
In the EU soymeal demand has been weak but, Mr Gadd said, it is expected to recover in 2013/1And globally other oilseeds are expected to substitute for soybeans, although a big Canadian canola crop will be needed to substitute for US demand.
Mr Gadd added: “If all goes well with the South American harvest, we will see high prices going into the 2014/15 season and the prospects for the US are for a tighter market.”
He added that there is a strong correlation between incomes and diets, with China increasingly moving to a more western diet and a changing diet being seen across the BRIC countries.
The ability of Brazil to have two cropping seasons a year are also having a significant impact on the availability of soybeans on the market but there has to a long-term trend in South America and Brazil to improve infrastructure, if the country is to reduce transport costs and improve delivery for exports.
At present, Mr Gadd warned that Brazilian transport costs that are reaching around $150 per tonne are completely uncompetitive compared to US transport costs of around £30 a tonne, making production costs too high in Brazil.
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