Reduced Soybean Production in South America Restricts Exports And Boosts Soybean Prices

The U.S. Department of Agriculture's trade report on the global oilseed market released on Thursday said dry weather in South America has severely damaged soybean yield potential over the past two months, leading to lower soybean production.

The USDA first released its South American production forecast in May 2021, when it projected record soybean production in Brazil, Argentina and Paraguay in 2021/22. But the U.S. Department of Agriculture now expects soybean production in the three countries to fall to the lowest levels since 2018/19.

Since the USDA’s December 2021 supply and demand report, soybean production forecasts for these three countries have been lowered by more than 18 million tons: Brazil’s production has been reduced by 7%, Argentina’s production has been reduced by 9%, and Paraguay’s production has been reduced by 37%. If forecasts materialize, a sharp drop in South American soybean production could significantly constrain global soybean trade.

This month the U.S. Department of Agriculture lowered its 2021/22 South American soybean export forecast by nearly 6 million tons and its crush by more than 2 million tons. In Brazil, the reduction in soybean production has a larger impact on exports and a relatively small impact on domestic crushing. In Paraguay, soybean export and crush forecasts are both lowered by about 1 million tons. In Argentina, soybean supplies have been hit by lower domestic production and lower imports from Paraguay, which will lead to lower soybean exports and crushing in Argentina.

Global soybean imports in 2021/22 are not expected to hit an all-time high, and year-on-year growth in global soybean meal consumption is expected to fall below 2% for the first time. With tight supplies supporting higher soybean prices, consuming countries are likely to reduce imports and offset the impact of declining supplies by depleting inventories, reducing soybean meal consumption, or using other alternative protein sources.