Brazil Seen Beating U.S. in Soybean Trade as China Buys

Brazil, which is set to displace the U.S. as the largest soybean grower this year, may extend that lead as planting is expanded to meet increased demand from China, the biggest buyer, according to Rabobank International.

Output will gain to 81.76 million metric tons in 2013-2014 from an estimated 79.88 million tons this year, Oswaldo Junqueira, head of trade commodity finance in Sao Paulo, said in an interview. Brazilian farmers are set to expand sowing by 306,000 hectares (756,142 acres) to 27.4 million hectares, and may add almost 3 million hectares through 2021, Junqueira said.

Rising supply from Brazil will intensify competition among exporters, potentially hurting demand for the oilseed grown in the U.S. Futures in Chicago have slumped 14 percent from an all- time high last month on speculation that a record crop in Brazil and supply from Argentina, the third-largest grower, may offset losses in the U.S. after the worst drought in half a century.

“Demand will be here in Asia,” Junqueira said in an interview in Singapore on Oct. 29. “Where will the supply be coming from to fulfill this gap? We see it from Brazil.”

Soybeans have rallied 28 percent this year in Chicago, making them the best performers after wheat on the Standard & Poor’s GSCI Spot Index of raw materials. The most-active price peaked at $17.89 a bushel on Sept. 4, and the January-delivery contract traded at $15.4775 at 5:38 p.m. in Singapore.

Biggest Producer

Production in Brazil climbed 53 percent in the past decade, compared with 7 percent in the U.S., according to the U.S. Department of Agriculture. In 2012-2013, Brazil will harvest 81 million tons, topping the U.S. crop of 77.84 million tons, USDA projections show. Brazil may also be the largest shipper in 2012-2013, beating U.S. exports, the USDA estimates show.

“There’s no more room in the U.S.,” Junqueira said. “We have some 158 million hectares used for pasture now with low use of technology. If Brazilians put more efficiency in cattle rearing, that’ll improve productivity and free up more space for plantations” without expanding into the Amazon forest, he said.

Brazil’s share of China’s imports has jumped 10-fold since 2000 as the South American country ramped up production, Jasper van Schaik, a Singapore-based head of commodity finance at Rabobank, said in the same interview.

In the year that ended Sept. 30, China imported 59.2 million tons of soybeans, customs data show, with 45 percent from Brazil and 39 percent from the U.S., according to Bloomberg calculations. Cargill Inc., the biggest U.S. agricultural company, said last month there was “a mega-trend of increasing consumption of meat, milk, eggs,” in China, according to Christopher Langholz, president of Cargill Animal Protein China.

Cooking Oil

Soybeans imported into China are crushed to make meal, which is fed to livestock and fish, while the oil is the nation’s largest source of cooking oil. China’s domestically grown beans are mainly used to make tofu and soya sauce.

China’s state-controlled Chongqing Grain Group Co. Ltd. plans to invest 4 billion reais ($1.97 billion) in a soybean complex in the Brazilian state of Bahia, according to a statement posted on the state’s website in March 2011.

While a law in Brazil bans foreigners from owning land, “they can invest in port terminals and railroads, and logistics,” Junqueira said. The government “is willing to create an environment for that” investment, he said.

Brazil, Argentina, and Paraguay will boost output by 32.6 million tons to 144.1 million in 2012-2013, more than offsetting the decline of about 6.35 tons in the U.S. crop, according to Bloomberg calculations based on USDA forecasts.

To contact the reporters on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net; Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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