All Signs Point to a Record-Breaking South American Harvest for Soybeans, But Logistical Hurdles Remain

The harvest outlook in Brazil and Argentina remains favorable with cooler weather and rains, although hot, dry conditions still persist in some areas of both countries. The region saw a significant fall in production due to a drought last season, leading to concerns over similar conditions this season. However, concerns have lessened with rain helping second-crop (safrinha) corn’s early stages in Brazil and crop estimate declines slowing in Argentina due to more favorable weather. While soybean harvest projections are strong in both countries, a dry planting season has made corn projections lower than in previous years.

Banking on New Records

Following a bumper grain harvest of 188.2 million tons in 2013, Brazil is banking on a new record in 2014, with a harvest prediction of 189.4 million tons, according to the Brazilian Institute of Geography and Statistics (IBGE). Of this estimate, corn, soybeans and rice will account for 91.4 percent, with increases in soybean estimates offsetting the decrease in corn estimates.

Last year, Brazil displaced the United States as the world’s top soybean exporter, according to the National Confederation of Agriculture. All eyes are expected to stay on the country’s soybean harvest over the next few months. Soybeans began harvesting earlier than normal, with about 6.8 million bushels loading and shipping in late-January – a month earlier than Brazil’s traditional shipping schedule.

While Brazil’s soybean crop is expected to increase to 87.5 million tons compared to 82 million tons last year, its corn crop is expected to decrease, with estimates at 72 million tons compared to last year’s 81 million tons. Because early season conditions were better for soybeans, 29.5 million hectares were planted this season, up 1.8 million hectares compared to last year. Rainfall in March helped alleviate dryness in February, benefiting second-crop corn but delaying the end of the soybean harvest.

In Argentina, the corn crop is projected at 24 million tons, a decrease from last year’s 26.5 million tons. The soybean crop is expected to rise to 54 million tons this year compared to the 49.4 million ton crop in the 2013 season, as the improved conditions for soybeans prompted the harvest area for soybeans to increase by 3.1 percent. Heavy rain in major production areas in central Argentina caused field flooding and hampered pest and disease treatment, raising concerns over maturing summer crop moisture levels.

Logistical Hurdles

Despite the anticipated bumper crop, logistics remain an on-going challenge, particularly in Brazil, where corn and soybeans have to travel thousands of miles from Matto Grosso, the country’s central producing area, to be exported through coastal ports.

Brazil is aiming to grow its export capabilities for soybeans and other grains through infrastructure investments in docks, barge fleets and terminals on the Amazon River and its tributaries. In northern and central Brazil, soybean producers are required to load their product on trucks that travel via sub-par roadways to overcrowded ports in southeast Brazil. Transportation costs are high and plagued with uncertainty: the crop can be held on trucks anywhere from a few weeks to three months, waiting to unload at congested terminals. The proposed infrastructure will provide producers a more economical option for moving their soybeans and other grains along the Amazon River to ports in the north.

The hope for the $2.5 billion project is that the river route and the northern ports will become major export centers in Brazil, ultimately cutting transportation costs in half and boosting export capacity by 30 million tons a year. The project is being met with some opposition by activist groups, such as Greenpeace, which are concerned that the new infrastructure will encourage illegal deforestation in the rain forest near the river.

Concerns also exist about the length of time it will take for the investment to be implemented, which could take more than a decade, despite aggressive estimates. Public funds are already being invested in southeastern ports to expand capacity, which may distract from the focus on the northern ports route. For now, the new project is not seen as an immediate fix to the shipping backlogs.

As a result, corn and sorghum producers in the northern and central parts of Brazil are looking for alternatives for their overabundant summer crop. Their reduced prices during this time have captured the attention of sugar mills and alcohol distilleries in Brazil, which are financing adaptations to their milling processes that would allow them to produce ethanol from corn and sorghum in the sugar cane offseason, when mills are typically closed. Although expensive, these investments are seen as a more viable short-term solution.