Report Highlights:

Post forecasts 2016/17 soybean production at 103 million metric tons (mmt), an increase of three percent compared to the current season. The 2016/17 planted area is forecast to increase to 33.7 million hectares. The slower pace of area growth compared to the last five years is attributed to higher production costs and economic/political challenges in Brazil. Soybean exports for the 2016/17 marketing year are forecast at 57 mmt based on strong demand by China. Due to export demand and new biodiesel mandates, soybean meal and oil production is forecast to increase.

Oilseed, Soybean

PRODUCTION: 2016/2017 Outlook:

Record Crop and Planted Area Forecast

Post forecasts 2016/17 soybean production at 103 million metric tons (mmt), an increase of three percent compared to the current 2015/16 production forecast. The 2016/17 planted area is forecast to increase to 33.7 million hectares (ha), an increase of 1.5 percent compared to the 2015/16 season. The slower area growth for 2016/17 compared to growth in the last five years is attributed to the higher expected cost of production, economic challenges in Brazil, and higher domestic interest rates.

Soybeans are forecast to represent over 50 percent of the cultivated area in Brazil in the upcoming growing season. The crop is expected to be more profitable compared to other commodities, but returns at the farm level are forecast to be lower as a result of the higher production costs. For example, in Mato Grosso, the most important soybean producing state in Brazil, farmers are expected to face higher production costs in 2016/17 as a result of the weaker Brazilian Real (Real) and double digit inflation. Cost of production for biotech varieties, the majority of the production in the state, is expected to reach an average of 2,997 Reals per hectares, a 16 percent increase compared to 2015/16. (1 USD = R3.67 on 3/28/2016)

Estimated Production Costs for Biotech Soybeans Varieties in Mato Grosso (Reals per ha)

2015/16

2016/17*

% Change

Costs of production

Seeds

219

248

+13

Fertilizers

702

800

+14

Herbicides

835

957

+15

Machinery Operation

109

123

+13

Labor

93

95

+2

Other Expenses

Technical assistance, transportation, storage, and taxes

434

474

+9

Financing Expenses and Depreciation Costs

Interest payments, depreciation of machineries and installations

238

280

+18

Total Operational Costs

R2,584

R2,997

+16

Political/Economic Scenario in Brazil

It is important to highlight the volatile economic environment Brazilian farmers have been experiencing in the last two years as a result of the political crisis. Currently, the Brazilian President is fighting calls for impeachment due to perceived elections irregularities. Due to this difficult political environment, the Brazilian Real (Real) depreciated over 40 percent in 2015. The Real depreciation resulted in significant gains for Brazilians farmers, as they were able to buy inputs using a stronger Real in the first half of 2015 but domestic prices were protected by a weaker Real at harvest in the second half of the year. Since soybeans are priced in U.S. dollars in the international market, the weaker exchange rate increased domestic soybean prices (more Reals per U.S. dollars). This exchange rate situation cushioned the overall decrease in global prices.

The weaker Real also allowed Brazilian soybean exports to be more competitive in the world market. Soybean export receipts were up 12 percent in 2015 as a result of higher domestic prices. However, this economic volatility, as a result of the political crisis, will be a factor again in 2016. If the Real continues to weaken due to the political uncertainty, domestic prices could increase, potentially translating into additional incentives to increase area. However, if the Real gets stronger (and global soybean prices stay at current levels), Brazilian farmers could face lower domestic prices for the 2016/17 growing season. For example, the Real appreciated by 10 percent overnight against the U.S. Dollar back on March 11, 2016 based on expectations of political changes. However, this situation could expand or revert depending on the political scenario this year.

Famers are also expecting less support from the Brazilian Government (GOB). Every year, the Ministry of Agriculture, Livestock, and Food Supply (MAPA), announces its “Plano Safra", a program that offers credit to cover production costs. However, availability of subsidize loans under this program are expected to be lower compared to last year due to the difficult economic situation the country is expected to face in 2016 and possibly into 2017. A portion of the program offers low interest (subsidized) production loans. The lower amount of loans is expected to contribute to the higher cost of production forecasted for next growing season.

Fertilizer Usage: Post forecasts that Brazil's fertilizer market for the 2016/17 will stay at about the same levels as the 2015/16 season. As farmers begin to make planting decisions for the 2016/17 crop, the expected weak value of the Real will impact the purchases of fertilizers, which most of them are imported. Brazil's fertilizer imports reach 70 percent of total domestic use. According to the National Fertilizer Association (ANDA), fertilizer deliveries totaled 30.2 mmt in 2015, down six percent from 2014. Total annual imports of fertilizer in 2015 equaled 21.1 mmt, down nearly 12 percent from 2014. National fertilizer production in 2015 equaled 9.1 mmt, up three percent from the 2014 national production.

PRODUCTION: 2015/2016 Progress:

Soybean Crop Estimated at 100 Million Metric Tons

Post kept its estimate for Brazil's 2015/16 soybean production to 100 mmt. The planted area, 33.2 million ha, is based on the latest estimates by the Brazilian Food Supply Company (CONAB). The growth in area for the 2015/16 season took place in all states in Brazil. The South region of Brazil increased area by 455,000 ha compared to last year, as many farmers shifted corn areas to soybeans due to the attractive domestic soybean prices. The Center-West region had an area increase of 440,000 ha, with the biggest area expansion in Mato Grosso and Mato Grosso do Sul. The Southeast and MATOPIBA regions (Maranhao, Tocantins, Piaui, and Bahia) also increased soybean areas.

Post forecast the national yield to better than last year and reach 3.01 metric tons per ha. Despite concerns on yields in the Center-West due to dry and hot weather in November and December, better than expected rains in January 2016 helped alleviate the impact. In the South, the wet weather has helped yields in some areas, but some reports also questioned the potential of records yields due to the long periods of cloudy weather and soybean rust.

The MATOPIBA region, responsible for about 10 percent of the total Brazilian production, is expected to suffer a much bigger impact on yields. The lack of rains, especially in the month of February, had a greater impact on yields, which is expected to be lower in all four states compared to 2014/15.

CONSUMPTION:

Soybeans will remain the primary oilseed produced in Brazil. Post forecasts 41 mmt of soybeans destined for processing in 2016/17 MY. The slight increase compared to 2015/16 MY is a result of higher biodiesel blending mandates, strong demand from the domestic animal sector, and export markets.

Even though Argentina, a competitor for Brazil on soybean oil and soybean meal, is experiencing favorable agricultural policies as a result of the new government, Argentina is expected to have lower soybean supplies in 2016/17 as a result of higher area for corn, sunflower, and wheat at soybeans expense.

Post forecasts 40.5 mmt of soybeans destined for procession on 2015/16 MY. The forecast is higher compared to 2014/15 MY as a result of higher exports of soybean meal and new biodiesel

TRADE - EXPORTS:

2016/2017 Export Outlook: Brazilian Exports to Stay Strong

Soybean exports in marketing year (MY) 2016/17 are forecast at 57 mmt, about three percent higher compared to the previous MY. This forecast is based on strong demand, mainly by China. The Chinese market is forecast to continue to import record amounts of soybeans, despite of its economic slowdown. Brazil's exports over 70 percent of its soybeans to China.

In addition, export competition from Argentina could potentially go down, despite its more favorable agricultural policies. Argentina's exportable supplies are expected to decrease as a result of a lower soybean production.

2015/16 Export Forecast: Weak Real Makes Brazilian Exports More Attractive

The 2015/16 MY soybean exports are forecast to reach 55.5 mmt, a record. The strong demand in China and the relatively weaker Real incentivized exports. The Real depreciated over 40 percent in relation to the U.S. dollar in 2015 as a result of the economic and political crisis in Brazil. This situation increased the pace of forward contracts in Brazil, as farmers took advantage of the higher domestic prices as a result of the exchange rate.

According to the Brazilian Central Bank, the average exchange rate in 2015 was R3.34 per U.S. Dollar. For 2016 and 2017, the Central Bank's outlook for the value of the Real is 3.99 per U.S. Dollar and 4.17 per U.S. Dollar, respectively.

Brazil Export Statistics

Commodity: Soybeans

Marketing Year (February-January)*

Partner Country

Unit

Quantity

Market Share 2014/15

2012/13

2013/14

2014/15

World

T

42,826,426

45,746,729

54,633,334

100.00

China

T

32,266,386

32,649,571

41,239,344

75.48

Spain

T

1,962,643

2,120,346

2,376,257

4.35

Thailand

T

1,065,441

1,303,556

1,733,596

3.17

Netherlands

T

1,585,904

2,000,436

1,496,072

2.74

Taiwan

T

979,771

724,678

1,008,382

1.85

Korea South

T

350,475

425,785

727,113

1.33

Vietnam

T

571,112

431,045

686,970

1.26

Iran

T

131,325

66,611

551,592

1.01

Egypt

T

-

275,649

535,880

0.98

Russia

T

12,702

557,703

527,033

0.96

Saudi Arabia

T

398,409

297,921

496,672

0.91

Source: Global Trade Atlas

*Marketing Year: For 2014/15, it runs from February 2015 to January 2016

Infrastructure Continues to Impact Soybean Sector

The large amount of soybean exports forecast for 2015/16 and wet weather in the south in the first quarter of 2016 has increased the amount of vessels' waiting to be loaded. It has been reported that the lineup is more than double compared to the 2014/15 MY and the wait time in the ports in the south region is about 50-60 days compared to 20 days last year. Despite much investments and added capacity in the two mains ports in Brazil (Santos and Paranagua), the wet weather in the southern region has slowed down operations due to increased congestion and difficulty in unloading the trucks.

In addition, the ports in the “Northern Arc" are continuing to help Brazilian exports and provide a much needed option. In 2015, Brazil exported over 20 percent of its soybeans (and corn) from the northern ports, compared to only five percent five years ago. Many multinationals trading companies have invested in terminals in the north and exports out of this region are only expected to keep going up.

TRADE – IMPORTS:

Soybean Imports to Continue to Slowdown

In the last five years, soybean imports from Paraguay became a good option for Brazilian processing plants in states bordering the country. Even though insignificant compared to Brazil's total exports, the growth indicated an interesting dynamic. Since imports from Mercosur members, like Paraguay, enter Brazil duty free, some crushers are avoiding the Circulation of Goods and Services Tax (ICMS) incurred by cross-state trade.

For 2016/17 MY, post forecasts imports to decrease to 150,000 metric tons (mt), mainly from Paraguay. Despite the tax advantages, the Brazilian record crop forecasted and the weak Real will make imports less attractive. For 2015/16 MY, post forecasts imports at 200,000 mt as a result of the depreciation of the Real.

Brazil Soybean Imports (in MT)

Brazil Import Statistics

Commodity: Soybeans

Marketing Year (February-January)*

Partner Country

Unit

2012/13

2013/14

2014/15

World

T

268,757

579,216

329,204

Paraguay

T

226,039

579,140

328,154

Argentina

T

4

75

1,050

Bolivia

T

42,714

-

-

*Marketing Year: For 2014/15 (February 2015 to January 2016)

DOMESTIC SOYBEAN PRICES:

Sharp Devaluation Supports Domestic Soybean Prices

The biggest story in Brazil in 2015 has been the sharp devaluation of the Real. However, the depreciation has been compensating farmers despite declining international prices for soybeans over the last two years. The weaker Real has effectively increased domestic soybean prices (more Reals per U.S. dollar). For example, the average monthly domestic soybean price in the state of Paraná increased by 30 percent 2015.

In 2016, the volatility of the value of the Real is expected to play a factor in planting decision. At this point, it is hard to forecast what the market value of the Real will be the rest of the year, but analysts expect it to stay relatively weak against the U.S. dollars.

POLICY:

Economic Situation Threatens Farmers with Potential New Taxes

The economic crisis has made the Federal and State Government look for new revenues sources. As a result, soybean exports (and other commodities) have been targeted. Most recently, the state government of Goais proposed an increase of the state's export tax, but it was quickly removed after heavy pressures from producers and various “farm groups". This issue will continue to be a concern for the agricultural sector across the board.

At the Federal level, members of the government have discussed the need to reactivate an export tax for agricultural products. The export tax of 2.3%, which agricultural exports have been exempt for some time, would in theory help increase revenues to support Brazil's social security program. Many people in the government have expressed opposition to this idea, especially the Minister of Agriculture, Katia Abreu. The measure is currently being debated and has not been implemented.

Oilseed, Soybean

2014/2015

2015/2016

2016/2017

Market Begin Year

Feb 2015

Feb 2016

Feb 2017

Brazil

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Planted

32100

32100

33300

33200

0

33700

Area Harvested

32100

32100

33300

33200

0

33700

Beginning Stocks

1577

1577

200

300

0

1450

Production

96200

96200

100000

100000

0

103000

MY Imports

325

325

300

200

0

150

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

98102

98102

100500

100500

0

104600

MY Exports

54635

54635

56650

55500

0

57000

MY Exp. to EU

6000

6000

6000

6500

0

6500

Crush

40300

40200

40000

40500

0

41000

Food Use Dom. Cons.

0

0

0

0

0

0

Feed Waste Dom. Cons.

2967

2967

3000

3050

0

3050

Total Dom. Cons.

43267

43167

43000

43550

0

44050

Ending Stocks

200

300

850

1450

0

3550

Total Distribution

98102

98102

100500

100500

0

104600

(1000 HA) ,(1000 MT)

Meal, Soybean

Post forecasts soybean meal production for 2016/17 MY at 31.8 mmt. For the current 2015/16 MY, post forecasts soybean meal production at 31.4 mmt. These increases are a result of higher demand from the Brazilian livestock and poultry sectors and increasing export demand.

Soybean meal exports have increased as a result of attractive export prices out of Brazil due to the devaluation of the Real. Asian markets, mainly Indonesia, Thailand, and South Korea, have increased its imports of Brazilian soybean meal in the last three marketing years.

Brazil Exports Statistics for Soybean Meal(in MT)

Brazil Exports Statistics

Commodity: Soybean Meal

Marketing Year (February-January)*

Partner Country

Unit

2012/13

2013/14

2014/15

World

T

13,618,676

13,720,780

15,105,457

Netherlands

T

4,431,524

3,294,853

3,203,479

Indonesia

T

602,291

1,479,231

1,991,428

France

T

1,572,378

1,748,190

1,839,099

Germany

T

1,314,835

1,403,228

1,484,005

Thailand

T

949,645

1,199,598

1,301,614

Korea South

T

1,131,725

895,758

1,070,605

Slovenia

T

550,617

607,278

758,689

Vietnam

T

427,178

294,243

594,974

Spain

T

244,006

509,992

472,428

Iran

T

534,084

231,523

434,170

*Marketing Year: For 2014/15 (February 2015 to January 2016)

Meal, Soybean

2014/2015

2015/2016

2016/2017

Market Begin Year

Feb 2015

Feb 2016

Feb 2017

Brazil

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Crush

40300

40300

40000

40500

0

41000

Extr. Rate, 999.9999

0.7742

0.7742

0.774

0.7753

0

0.7756

Beginning Stocks

3826

3826

4400

4400

0

4510

Production

31200

31200

30960

31400

0

31800

MY Imports

20

20

20

10

0

10

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

35046

35046

35380

35810

0

36320

MY Exports

15100

15100

15600

15600

0

15800

MY Exp. to EU

10500

10500

10500

10500

0

10500

Industrial Dom. Cons.

0

0

0

0

0

0

Food Use Dom. Cons.

0

0

0

0

0

0

Feed Waste Dom. Cons.

15546

15546

15650

15700

0

15850

Total Dom. Cons.

15546

15546

15650

15700

0

15850

Ending Stocks

4400

4400

4130

4510

0

4670

Total Distribution

35046

35046

35380

35810

0

36320

(1000 MT) ,(PERCENT)

Oil, Soybean

Higher Biodiesel Mandate Increases Domestic Demand

Post forecasts 2016/17 MY soybean oil production at a record 8.2 mmt as a result of the new biodiesel mandate, which will be implemented beginning March 2017. The Brazilian President signed on March 23, 2016, a law that increases the biodiesel blending in diesel sold in the country. The law increases the mandate from the current 7 percent (B7) to 8 percent (B8) by 2017, then by 9 (B9) percent by 2018, and finally by 10 percent (B10) by 2019. The law also stipulates that biodiesel blending can reach 15 percent after 2019, provided that tests are conducted on engines and there is approval by the Brazilian National Energy Policy Council.

For 2015/16 MY, post forecasts production at 8 mmt as a result of the B7 mandate, which was implemented early 2015. The production is slightly lower than 2014/15 as a result of the economic recession in Brazil.

In 2015, biodiesel production in Brazil grew by 15 percent as a result of the legislation that authorized the B7, according to data from the National Agency of Petroleum, Natural Gas and Biofuels (ANP). This makes Brazil the second largest biodiesel producer, behind only the United States. The Center-West accounted for 44 percent of all manufactured biofuel, followed by the South (39 percent) and the Southeast (7 percent).

Although biodiesel production in 2015 was 3.94 billion liters, ANP data shows that the domestic industry has the capacity to produce 7.3 billion liters per year. This means that Brazil could easily absorb the expected mandate increase through 2019. The most important raw material for biodiesel in 2015 was soybeans, accounting for 77 percent (or 2.7 million mt of soybean oil) of all biodiesel produced in the country, followed by animal fats (19 percent) and cotton seed oil (2 percent).

Soybean Oil Exports

Soybean oil exports are forecast 1.6 mmt in 2016/17 MY and 1.5 mmt in 2015/16. Argentina's price competitiveness will continue to reduce Brazil's export market share in soybean oil; however, a lower soybean crop in Argentina next year can potentially allow Brazil to gain some additional market share.

Oil, Soybean

2014/2015

2015/2016

2016/2017

Market Begin Year

Feb 2015

Feb 2016

Feb 2017

Brazil

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Crush

40300

40300

40000

40500

0

41000

Extr. Rate, 999.9999

0.1921

0.1921

0.192

0.1975

0

0.2

Beginning Stocks

565

565

280

280

0

280

Production

7740

7740

7680

8000

0

8200

MY Imports

11

11

10

0

0

0

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

8316

8316

7970

8280

0

8480

MY Exports

1650

1650

1340

1500

0

1600

MY Exp. to EU

50

50

50

50

0

50

Industrial Dom. Cons.

2896

2896

2915

3000

0

3100

Food Use Dom. Cons.

3490

3490

3500

3500

0

3500

Feed Waste Dom. Cons.

0

0

0

0

0

0

Total Dom. Cons.

6386

6386

6415

6500

0

6600

Ending Stocks

280

280

215

280

0

280

Total Distribution

8316

8316

7970

8280

0

8480

(1000 MT) ,(PERCENT)