Brazil’s soybean crop is getting smaller due to drought

PORTO ALEGRE, Brazil -- Farmers in Brazil are watching a drought cut yield prospects, mainly in the southern states of the country.

Brazilian consultancy AgRural, which is based in Curitiba, has adjusted its soybean production forecast for the country to 124.3 million metric tons this week. That is over 1 million metric tons less than what was projected one week before.

The reduction is blamed on the drought in the state of Rio Grande do Sul. Some government institutions even project larger reductions for the state, but the AgRural estimate considers that bigger yields in other states would compensate significant losses.

As several farmers individually have reported that losses in their own region could overcome 50% of production, now projections have officially changed. The Federation of Agricultural and Livestock of Rio Grande do Sul reduced its estimate from 19 million metric tons of soybeans for the state alone to 10 million metric tons. The Rural Institute of Technical Assistance of Rio Grande do Sul reduced its projection to 13 million metric tons.

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“We’re lucky if we harvest 10 million metric tons,” said Antonio da Luz, an economist at the Federation of Agricultural and Livestock of Rio Grande do Sul.

In terms of trade, it is important to mention that Brazil was the only country in South America that did not close its borders in any way as a response of the coronavirus. Ports and airports are free to move any cargo.

Consultancy Datagro says that 57.8% of a projected crop of 123.62 million metric tons was sold. That is a 10% increase from February. In the same period of last year, sales were at 44.2% of production.

“The best quotes in the second half of February and first days of March helped to increase sales,” said Flavio França Jr., market analyst at Datagro.

The market explanation for this rush in sales is that Brazil’s real has devalued over 50¢ against the U.S. dollar as a result of the coronavirus outbreak, which reflects in soybean prices paid to Brazilian producers. In recent days, the soybean prices set a record of almost $20 per bag of 60 kilograms.  

Market analyst Carlos Cogo has recommended that Brazilian farmers sell soybeans under spot contracts instead of basis. Cogo, however, has alerted that a big risk of the coronavirus outbreak is that the planting of the 2020-2021 crop could face difficulties due to the lack of fertilizers and agrochemicals if the international supply chain is more affected by the outbreak.