Brazil Corn-to-Soy Switch Foreshadows Record Glut: Commodities

The crash in corn prices is spilling over into soybeans. As a result, Brazil will grow more of the higher-value oilseed, helping push global markets into a record glut and replacing the U.S. as the top producer.

Soybean farmers in the largest exporting nation plan to sow a second crop in a Jamaica-sized area in the off-season rather than rotate to corn, as they traditionally do, after corn lost 42 percent in a year. That’s enough to produce a record surplus of the legume used in everything from tofu to salad dressing and sold in Japanese restaurants as edamame beans.

A group of farming companies including Vanguarda Agro SA are planning to make the switch for the May-to-June harvest for the first time rather than lose more money in the off-season on corn. Vanguarda’s third-quarter loss was its biggest in a year.

“Growers should continue to face a hard time to make any profit from their corn crops in 2014,” Vanguarda Chief Executive Officer Arlindo Moura said by phone from Sao Paulo.

Farmers in Mato Grosso state who produce about a 10th of the world’s soybeans will plant them again on about 1 million hectares (2.5 million acres) of 3 million previously sowed with corn for the May-to-June harvest, Carlos Favaro, head of growers group Aprosoja, said in an interview.

That would add as much as 3 million metric tons -- more than Japan’s annual imports -- to the record 88 million the U.S. Department of Agriculture expects for the full growing season, according to Favaro.

Global Surplus

The shift should take pressure from corn prices and add it to soybeans. Soybeans for January delivery rose 0.7 percent to close at $13.295 a bushel at 1:15 p.m. on the Chicago Board of Trade. Corn gained 1.2 percent to $4.365 a bushel.

The extra output in Mato Grosso alone would be enough to raise a global surplus of the oilseed above the record 71.8 million tons from the 70.2 million-ton currently estimated by the USDA. USDA and Brazilian government forecasts so far haven’t taken into account any soybean planting for Mato Grosso’s off-season.

Brazil already surpassed the U.S. during the past season in exporting soybeans. They fetch about three times the price per ton as corn, the worst performer of the 34 most-traded commodities tracked by Bloomberg in the past year, while the cost of transporting a ton of either through more than 1,000 miles of pot-holed roads from Mato Grosso to ports is the same.

Growers in Mato Grosso, Brazil’s biggest producing state, typically sow soybeans September to November for harvesting in the hotter months of January to March, in the Southern Hemisphere’s summer.

Two Germanies

Harvesting machines reap the oilseed from fields that stretch to the horizon in a state more than twice the size of Germany. Planting machines often follow right behind injecting seeds of corn or cotton into the soil, underneath a layer of scorched remains of soybean plants that help retain humidity.

The corn and cotton planted during the soybean harvest is usually collected between May and June in the Safrinha, or Little Harvest, when crop yields are lower because of dryer weather, worn-out soil and less spending on additives.

This season some areas will be sowed with soybeans for a second round of harvesting because corn at about a third of the oilseed’s price is not paying off considering transportation costs are relatively high, said Michael Cordonnier, the publisher of the Soybean & Corn Advisor Inc. in Hinsdale, Illinois.

“Domestic corn prices in Mato Grosso are currently below the cost of production and there are not many signs that they’ll improve any time soon,” Cordonnier said. “Soybeans are a better option economically.”

Trucking Costs

The cost of trucking corn from landlocked Mato Grosso to ports eats into about half the export revenue, compared with just 18 percent for the oilseed, according to data from the University of Sao Paulo’s Cepea research agency compiled by Bloomberg.

Mato Grosso farmers are still holding on to 35 percent of last year’s corn, up from 10 percent a year earlier, as they wait for prices to rise or the government to purchase some of their production, according to the Mato Grosso Institute of Agricultural Economics, known as IMEA.

A shift to more lucrative soybean crops is already taking place as farmers finish planting for the summer harvest.

As a result of more area for the oilseed, Brazil will boost soybean exports to 44 million tons, or 40 percent of global shipments, in the 2013/14 crop year ending Sept. 30, up from 41.9 million a year earlier, according to USDA data. That compares with an increase to 39.5 million from 35.9 million in U.S. soybean exports.

Disease Risk

The Safrinha soybean output may not be as big as Aprosoja expects because farmers will be discouraged by the prospect of lower yields, a higher risk of fungal disease and worm outbreaks, as well as the need for increased spending on pesticides and soil additives, said Anderson Galvao, director of Uberaba, Brazil-based crop researcher Celeres. He estimates the area planted with soybeans for the winter harvest may reach 500,000 hectares.

“Planting soybeans over soybeans involves increased costs with pesticides and productivity losses that may turn it less profitable,” Galvao said.

SLC Agricola SA, which also grows soybeans and corn in Mato Grosso, is less prone than Vanguarda to make the shift toward soybeans in the mid-season period because of the higher disease risk. The company will only plant it in certain areas as a test, CEO Aurelio Pavinato said.

“There are huge technical issues in growing a second soybean crop as you tend to increase pest infestation,” he said by telephone from Porto Alegre, Brazil. “It definitely doesn’t make sense in a sustainable production system but maybe as an alternative in an exceptional year.”

Crop Yields

Safrinha soybean crops will probably yield about 2,000 kilograms per hectare (29 bushels per acre), which is two thirds of the typical 3,000 kilogram-per-hectare yield in Brazil, Cordonnier said.

Still, at current corn prices, growers may not have a better choice.

“It costs more to transport the corn from Mato Grosso to ports in southern Brazil than it costs to buy the grain from farmers,” Cordonnier said.

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