Brazil's Largest Agricultural Cooperative Expects 40% Of Soybean Production To Be Lost Due To Drought

Brazilian agricultural cooperative Coamo is expected to receive 3.6 million tonnes of soybeans in 2021/22, 40% less than expected before drought losses.

Early in the year, the cooperative expected to receive 6 million tonnes of soybeans this year, up from 5.1 million tonnes the previous year. But hot, dry weather late last year and early this year hurt soybean yield potential.

Coamo is the largest agricultural cooperative in Brazil, headquartered in the state of Parana, with more than 30,000 members, operating in Parana, Santa Caterina and Mato Grosso do Sul.

Continued rise in soybean prices will make up for lower yields

CEO Elton Gallinari said the continued rise in soybean prices, helping to make up for lost production, meant the outlook for 2022 remained positive.

In 2021, the cooperative's revenue will be 24.7 billion reais, an increase of 23.3% over 2020; the net profit will be 1.835 billion reais, a year-on-year increase of 65.4%.

The soybean market has risen by more than 40 percent from 130 reais per 60-kilogram bag last year to 188 reais now, he said. Therefore, although production has decreased, the sales price has risen even more.

In addition, China began to re-enter the market to purchase US soybeans, and because of concerns about the reduction of soybean production in Brazil, some demand was transferred to the United States. This affects the trend of Chicago soybean futures, which in turn affects the price of Brazilian soybeans.

USDA is too conservative

He said the USDA's February report (which included South American production figures) was very conservative and did not correctly estimate the size of the soybean crop failures in Brazil and Argentina, and the extent to which U.S. soybean exports benefited from South American weather problems.

The U.S. Department of Agriculture lowered Brazil’s soybean production by 5 million tons in its February report, from 139 million tons to 134 million tons. For comparison, Brazil's National Commodities Supply Corporation lowered Brazil's soybean production to 125.74 million tons, down 15 million tons from its January forecast.

Galinari said it was difficult for Brazilian exporters to load ships for export because fewer soybeans arrived at ports than during the normal harvest season, requiring multiple companies to work together to supply soybeans to one ship. This strategy is designed to avoid "demurrage", which is a penalty paid for delayed shipments.

One factor that makes it difficult for exporters to obtain soybeans is the need for Brazilian exporters to compete with the domestic crushing industry for supplies. The domestic industry is also snapping up soybeans. In Parana’s case, the state’s 11 million-ton crushing capacity is close to this year’s soybean production, so there is less excess available for export.

In addition, producers are also cautious in marketing given the positive outlook for soybean prices. Farmers don't want to sell soybeans, they just sell them to pay their bills. But how much to sell, and at what speed, largely depends on the choice of farmers.

Brazil's second corn crop still has hope for a bumper crop

 

This year's unfavorable weather has damaged soybeans more than corn. That's because the drought is currently affecting a lower yield of the first season corn. The second crop, which accounts for about 75 percent of total production so far this year, is progressing well, while Brazil's second crop was hit hard by drought and frost last year. Coamo estimates it will receive about 3.3 million tonnes of second-crop corn this year, up from 1.9 million last year. That's another factor supporting earnings this year, in addition to rising soybean prices.