Brazil is now the superpower to watch on agricultural markets

Brazilian agricultural is becoming a superpower in crop production at a rapid rate.

The country has not just been passing production records in recent years, but has been surpassing them by 20m tonnes. Infrastructure in the country is also improving and making it easier to export product around the world.

We once associated Brazil with beef, but as pasture converts to cropland, it is fast becoming a country that is producing more corn and soybeans than it can move and store at the same pace as its growth.

At the Barnett Hall conference at the end of October, Dan Basse, an agricultural economist and president of AgResource Company in Chicago, told the crowd that Brazil is the new agricultural Behemoth, which describes something huge, enormous and powerful.

He explained that agricultural markets will react more now to weather in Brazil than weather in the US. Brazil is now the biggest corn exporter in the world.

“If you’re a farmer, you want China to be buying your goods. It’s as simple as that. In the US, they [China] buy $35bn of ag goods each year. In Brazil, that number is moving up dramatically,” Dan commented.

He described Brazil as China’s grain supplier and storehouse. He said they’re walking together and that monthly exports to China are going off the chart.

He thinks that Brazilian corn exports will hit 10m tonnes in October and the majority of this will go to China.

“Just in December, Brazil was approved to take corn, so this is happening all very, very quickly and I think the footprint of that will be very important going forward.”

He added that Brazil is projected to produce 163m tonnes of soybeans in 2024.

Argentina is to produce 48m tonnes, and there is expected to be a world-record large crop of 400m tonnes of soybeans, leading to a projected high in January soybean futures of around 1,306c/bu in the US. This price had peaked at 1,317c/bu.

Weather impacting on crop yields

However, Dan warned of climate and weather patterns. He said that farmers put every effort into producing their best crops, but in some areas, yields are stagnating or being hit by weather systems.

“We see the oceans at a record temperature right now. The first thing that absorbs radiation is our oceans,” he noted. He said that the climate scientist at AgResource is watching this closely.

Dan explained that when we lose the ice sheets, we end up with jet streams that are differently aligned. These jet streams go back and forth or stay in one position for a long period of time. He said that this means that we are getting more pattern stagnation than we’ve seen before.

“Under a good pattern, you end up with record crop production like Brazil last year,” he said.

He talks about marine heat waves, pools of water that cause high-pressure cells. Argentina lost 50% of their yields on corn and soybeans last year.

“It takes something really dramatic for that to happen,” Dan said.

However, the United States Department of Agriculture (USDA) is estimating that Argentina and Brazil combined will produce 47m tonnes more than last year’s record, and this makes for a bearish market.

On the other hand, countries can end up being under a bad weather pattern. He said he was worried about soil moisture levels in parts of Brazil, Australia, Europe, and Canada.

USDA yields are stagnating and Dan believes that climate variability is playing into this. He also noted that record consecutive Northern and Southern hemisphere crops are needed in order to create “a supply cushion of world grain stocks”.

To this, he adds that water levels are dropping in some of the most crucial rivers in the world for the trade of agricultural goods.

As he spoke, 84 ships were queuing in the Panama Canal due to low water levels. Exporters are struggling to get grain down the Mississippi due to record-low water levels.

The river directs 47% of agricultural trade in the US. Barges are being loaded to 40% to 60% capacity on the Rhine and Danube rivers in Europe.

War in Ukraine

Talking about the war in Ukraine he commented that Russia and Ukraine’s wheat exports were record large, even with the war: “Imagine, two countries fighting, yet they’re still exporting record amounts of wheat.”

He commented that wheat prices could be $40 to $60/t higher today if Russia’s wheat wasn’t being pumped out on the world market, and if Ukraine wasn’t selling cheaper. He suggested that when these supplies start to decline, the wheat markets could turn sharply.

Dan Basse is president and founder of AgResource Company, Chicago, an agricultural research firm which forecasts domestic and world agricultural price trends, providing support to farmers and companies trading agricultural commodities in 81 countries. He is an economist and has been in commodities since 1979. He is also a member of the US Farm Foundation, which helps to set US Ag Policy.

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