Brazil’s Soybean Farmers Are Betting on La Nina to Boost Profits

Farmers in Brazil, the world’s largest soybean exporter, are gambling on La Nina to boost profits.

Advanced sales for the next soy crop are halted as farmers await higher prices, according to Luiz Fernando Roque, an analyst at consulting firm Safras & Mercado. Growers are betting that a third consecutive year of La Nina may cause drought losses in Brazil’s far south and in Argentina, boosting futures prices, he said.

The strategy isn’t without risks: a bumper harvest and storage shortages could end up favoring buyers, undermining the position of farmers and driving down global prices of ubiquitous oilseed that’s used around the world for food, cooking oil, animal feed and biofuels.

Unlike prior years, Brazilian farmers are cash handy and don’t need to rush to sign forward sales agreements to pay for planting costs. There are low incentives to sell in advance as offers on the spot market are above futures contracts.

Brazil’s low storage capacity may force growers to flood the market with soy when the pace of harvesting picks up in December, driving prices down. Unlike the US, where most farmers own their silos, most small and medium-sized Brazilian producers harvest and immediately deliver their grains because they lack their own storage.

That means Brazilian farmers need to have a large portion of their production sold at the harvest. If volumes are big, such selling could pressure prices and favor trading powerhouses such as Bunge Ltd. Cargill Inc. and Archer-Daniels-Midland Co. that have strong operations in the South American nation.

ADM said this week that Brazilian soy farmers have sold 19% of this season’s expected production, down from 28% in the previous season and below the five-year average.

Brazil produces more grains than it can store. The country is expected to harvest 152 million tons of soybeans and 126 million tons of corn next year, according to US Department of Agriculture estimates, even though the country has a grain storage capacity of 181 million tons, with only 27.6 million tons capacity at farms.

Source: Bloomberg

To read the full original article, please go to: https://www.bloomberg.com/news/articles/2022-10-26/brazil-soybean-farmers-halt-advance-sales-to-bet-on-la-nina-profit-boost

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