US vs. Brazil

Soybean Market Share Battle Ramping Up

Alan Brugler
By  Alan Brugler , DTN Contributing Analyst
This chart displays monthly Brazilian and U.S. export shipments in million metric tons. Notice that the Brazilian shipments typically ramp up in March as new crop becomes available. (Chart by Alan Brugler)

The USDA reports Tuesday had a lot of numbers, both foreign and domestic, and covered a number of commodities. On the surface, the U.S. soybean supply and demand table was bullish because USDA raised projected exports 15 million bushels and cut projected old-crop ending stocks to 445 million. The world report was modestly bearish, with projected soybean ending stocks seen 150,000 metric tons larger than they were in the March report. However, there was one set of numbers that really caught my eye.

The World Agricultural Outlook Board (WAOB) folks increased projected Brazilian soybean exports for the current year from 58 million metric tons to 59.5 mmt. Besides leaving them with tight old-crop stocks of 17.3 mmt, you might wonder why that matters. The U.S. export projection was also raised, but only by 410,000 mt. More significantly, at least to me, Brazilian soybean shipments for the current 2015-16 marketing year are now being projected to be 28% LARGER than U.S. shipments (46.4 mmt). The U.S. is losing global market share for whole soybeans. This is not a new development, but the pace of slippage is just as alarming as it would be for Kroger to find out they lost 2% of share to Walmart or Safeway.

This is a commodity business, with efficiencies of scale. USDA typically makes revisions to the world data for 36 months, so even the data from two years ago isn't final. That said, Brazilian soybean exports in 2013-14 were only 0.6% larger than the U.S., at 46.83 mmt versus 44.57 mmt for the U.S. Shipments in 2014-15 were only 0.9% larger than the U.S. That 28% jump expected during the current year is a big deal! It would be an even bigger issue if global soybean consumption was shrinking instead of rising. USDA currently sees global offtake at 316.35 mmt in 2015-16 versus 299.68 mmt last year and 275.25 mmt for 2013-14. A rising tide lifts all boats, but a shrinking percentage of them have U.S. soybeans on them this year. China is of course the largest buyer, revised to an estimated 83 mmt this year in the USDA standard Sept. 1-to-Aug. 31 time slot. Doing the math, 62.7% of global import trade (132.26 mmt) is being offloaded in China.

Another way of looking at the market share issue is to look at monthly exports by Brazil versus the U.S. We have long argued that soybeans have a two-season marketing year. The U.S. needs to sell roughly 80% of its export beans in the first six months after harvest, while it has an interest and storage advantage. Then, South America has a six-month window to sell its straight-out-of-the-field inventory. If one origin or the other under-produces due to weather and yield problems, the other gets a price signal to ramp up production. The opposite is also true right now, i.e. when there is a surplus, both players are given a signal to cut back production and fight for market share. Having soybeans below $10 sends that signal, after they had been above $17.94 at the peak in 2012.

The chart accompanying this column displays monthly Brazilian and U.S. export shipments in million metric tons. It illustrates the two-season argument quite nicely. Notice that the Brazilian shipments typically ramp up in March as new crop becomes available. The blue bar for this March was 2.8 mmt larger than last year. Notice also that the shipments last fall were larger (longer blue lines) than the corresponding months for the previous year. This was a function of excess supplies following the record 97.2 mmt crop in 2014-15. They were still trying to get rid of it when the U.S. started to ramp up shipments.

Where does this leave the U.S. going forward? Argentine exports might be down next year, as tariff changes pull acreage away from soybeans and into corn and wheat. That would be a plus for U.S. and Brazilian volume. On the other hand, China is strongly encouraging producers to cut back corn plantings by 1.6 million acres in 2016, and by more than 8 million acres by 2020. Most of those would be switched to soybeans, with potatoes also being encouraged. Even for 2016-17, they might grow 2 mmt of additional soybeans. That shrinks the global export pie if it happens and likely cancels out any Argentine reduction.

Barring a weather event that shrinks global supplies quickly, export sales will tend to go to the low-cost producer and margins will tend to be narrow/thin/non-existent until the supply better fits the demand. Expect to see price swings as money sloshes about, but expect any windfall profits to be available for only a short time. Conversely, most summer soybean rallies are triple-digit moves in cents per bushel, not double-digit moves. Keep a little powder dry!

Alan Brugler may be reached at alanb@bruglermktg.com

(AG/CZ)