Highlights

Post forecasts 2017/18 area planted to remain stagnant at 1.2 million hectares. This area and a return to historical yields are forecast to produce 3 million tons. Production for 2016/2017 is estimated at 3.4 million tons thanks to record yields, the result of excellent conditions throughout the season. A recent phytosanitary protocol reached between Uruguay and its primary export market, China, has led to great uncertainty in the country’s soybean sector.

Policy Update – Uruguay Signs Phytosanitary Protocol with China on Soybean Exports:

On October 16, 2017, the Uruguay Ministry of Agriculture (MGAP in Spanish) and China’s Administration of Quality Supervision Inspection agreed to new protocol regulating the export of Uruguayan soybeans to China. This protocol details new import standards requiring soybeans exported to China to be free from live pests and not mixed or contaminated with other grain, minerals or soil. Per local press reports, this new protocol was spurred by quality issues found in select shipments that arrived in China.

Local producers and exporters have expressed concern over this new protocol as they find it more stringent, especially with the inclusion of new pests and fungi. Moreover, they’re concerned their supplies may not be able to meet the protocol’s demanding requirements, potentially leading to a significant decline in Uruguayan soybean exports to China. The protocol warns that if non-compliance is found and if the problem is “serious enough,” the exporter and elevator could be suspended immediately until corrective measures are taken.

In late February, MGAP convened a meeting with soybean producers and exporters to ensure compliance with the agreement. At this session they recognized that greater controls are needed to curb pests, but there is concern over the monetary risk exporters would assume without any guarantees. MGAP has stated that it will implement monitoring program to minimize to the occurrence of pests, fungi, and weeds. Chinese authorities will also be supervising the companies handling and exporting these soybeans and determine if they are taking steps to clean the beans and reduce debris, impurities, weeds and pests.

The next few months will be critical for the Uruguayan soybean sector, as it will accelerate shipments to China. The 2016/17 marketing season will be the first season Uruguay ships under these new requirements. Producers will closely monitor the situation to determine if their grain supplies will be able to enter the Chinese market without any issues. At present, sector observers report that if Uruguayan soybean exports encounter significant problems entering China, it could lead to dramatic reduction of soybean area for the 2017/18 season. Post will continue to monitor the situation and report on any developments.

Production:

2017/2018

For the 2017/18 season, Post forecasts planting area to remain stable at 1.2 million hectares, the same estimate for the 2016/2017 season. At present, there is substantial uncertainty in the sector over the recent phytosanitary protocol signed with the country’s top market, China. Producers will be monitoring this situation over the next few months and will modify their planting intentions based on the flow of shipments to this market. Post estimates next year’s yields at 2.5 tons per hectare, slightly above historical averages thanks to improvements in seed technology and greater input applications. As such, Post forecasts production at 3 million tons.

This is forecast based on local cautious optimism that the flow of soybean exports to China will not be interrupted by the new protocol. Local analysts have begun to evaluate the potential effects of an interruption and how producers could adjust their planting intentions. Their analysis suggests that planting area could decline to as low as 800,000 hectares, a one-third decline in area from current estimates, if producers believe the marketing of their soybeans to the Chinese market is problematic. On the other hand, these analysts report that if shipments are not interrupted and there is a moderate rise in soybean prices, planting area could increase to 1.3 million, an additional 100,000 hectares from Post’s current estimate for the season.

Ongoing consolidation in the soybean sector will continue in the 2017/18 season. Crop production will continue to reorient itself back to the departments of Rio Negro, Soriano, and Colonia, a region known for prime crop production area. Previously, various political and market factors, particularly the rally of commodity prices of a few years ago, encouraged the expansion of soybean area towards the north and east parts of country – the departments of Salto, Paysandú, Florida, and Durazno.

The consolidation isalso manifesting itself in individual farm operations with producers cutting back on expenses and restructuring their enterprises by selling off machinery and cutting personnel. A rise in machinery rentals as producers evaluate more cost-effective alternatives to complete their operations. Producers are also grappling with debt accumulated over the past few years. While most producers are expecting to achieve adequate to high profits for the 2017/18 season, they plan not to reinvest in new capital expenditures. Instead, producers will take the opportunity to refinance their debts and make themselves more solvent. Interest rates are averaging around 6 percent.

Producers anticipate that margins will be tight next season as input costs continue to grow, particularity chemical applications. The prices of these chemical inputs will grow on average by 10 percent. Rent costs, however, are expected to remain stable around 0.6- 0.9 tons per hectare, depending upon land quality. Based on these expectations, the breakeven yield is expected to revolve around 2.4 tons per hectare. Previously, 70 percent of Uruguay’s crop production was completed on rented land and 30 percent on land owned by producers. This is changing however as part of the ongoing consolidation mentioned before and it’s now estimated that 60 percent of crop area is rented and 40 percent is owned. Moving forward, producers and analysts believe that this rent/own mix will be 50/50.

About two-thirds of production is financed via input companies or banks. The remaining third of production costs are covered by producers in cash. Many producers enter what local contacts describe as barter-like arrangements where input companies will supply inputs to producers in exchange for a negotiated volume of soybeans or its monetary equivalent based on a negotiated price. Mid to large producers tend to finance about a third of their production costs themselves.

Producers have noted significant issues with soil conditions that have worsened over the years. Increasingly, producers have had to add additional potassium and nitrogen into the soil as the natural levels of these minerals have declined. Producers attribute this to the back-to-back production of soybeans. Producers are increasingly feeling the need to practice more crop rotation to rebuild soil health. For those producers with more serious soil issues, they are considering introducing pastures (like alfalfa) into this rotation pattern.

2016/2017

Post’s 2016/2017 area harvested is estimated at 1.15 million hectares based on local sources. This season’s conditions were excellent and are expected to result in record yields. As of late April, 25 percent of the crop had been harvested. Local contacts report that the harvested crop is of great quality with above-average yields at 3.0 – 3.1 tons per hectare. Based on a national average yield of 2.9 tons, Post is estimating production at 3.4 million tons.

This season’s record yields were supported by excellent weather conditions and elevated input (fertilizer, herbicide, etc.) use. Local sources report 1st crop soybean yields over 3 tons per hectare and are expecting 2nd crop yields at 2.7 tons per hectare. Greater fertilizer use was encouraged by relatively lower fertilizer prices. Thanks to these higher yields, margins are expecting to be very good, especially for producers who do not have to pay rent costs.

Others point to even higher margins of $350 per hectare for producers who managed their costs better. This year’s positive margins will be especially welcomed by producers needing financial relief after last year’s devastating season caused by harsh weather conditions. Due to past accumulated debts, producers are not expected to reinvest these earnings into their operations in any significant manner through capital expenditures, instead these earnings will go towards their savings.During the 2016/17 season, seed prices were higher due to lower domestic supplies – a result of last season’s damaging weather which lowered domestic seed production. Seed companies had to import seed from foreign sources such as Argentina and Paraguay at elevated costs. There was an increase in the adaptation of INTACTA seed as that was the most readily available seed variety. All of Uruguay’s soybean varieties are derived from biotechnology. The rapid and successful adaptation of this technology has contributed to higher yields. The country’s patent protection and royalty collection regimes supported by government and industry resources are robust and exemplary.

Crush and Consumption:

Post forecasts 2017/2018 crush at 80,000 tons, a decline of 20 percent from the previous year. This is the result of less demand for soybean supplies due to lower biodiesel production and the substitution of soybeans for canola in feed stocks. Uruguay’s primary biodiesel blender, Alcohols of Uruguay (ALUR in Spanish), introduced an ambitious plan to utilize more canola as a feed stock for their operations. ALUR notes that canola has become an increasingly critical component of their feed stock mix and that its increased planting will aid needed crop rotation. The company’s leadership adds that canola is an excellent substitute and is expected to assist them in reaching greater efficient and improved profitability. The canola area planted is expected to increase to 40,000 hectares for 2017/18 due to additional demand from the biodiesel sector.

2016/2017 crush is revised down to 100,000 based on updated information from the crush sector. This decrease is part of a going decline in biodiesel production, the result of adjustments made to the local mandate which is expected to keep production flat. A steady increase in soybean oil and meal imports over the past few years is also lowering the need for domestic crush to extract these byproducts. While the proportion of domestic production and imports may vary each different year, the country has generally been a net import of soybean meal and oil.

The main uses of soybean and by products in Uruguay include animal feed, human consumption in the form of oil, industrial use, and biodiesel. In 2007, the National Fuel Administration (ANCAP) published a law that mandates the blending of diesel with biodiesel. New crushing facilities and biodiesel plants emerged in the past years to meet this national biodiesel mandate. ALUR is largely responsible for supplying ANCAP with the biodiesel necessary to meet the five percent mandate. ALUR has some crushing plants of its own but the largest crusher and thus the largest supplier of soybean oil for their operations is the private firm of COUSA. Other feed stocks like sunflower oil are also used for biodiesel production. Yet, more than 40 percent of Uruguayan biodiesel is derived from animal fat, by far the cheapest substitute for feed stocks. Contacts report that soon the biodiesel sector will source over half of its raw inputs from animal fats.

Based on the crush forecast, Post forecasts 2017/18 soybean oil production at 15,000 and soybean meal at 64,000 tons. 2016/2017 soybean oil and meal production is revised to 19,000 and 80,000 tons, respectively.2017/2018 domestic meal consumption is forecast at 275,000 tons, an increase of 2 percent from the previous year on steady growth in the poultry and pork sectors. 2015/2016 meal consumption is revised to 270,000 tons based on updated data. 2017/18 domestic oil consumption is expected to increase slightly by 1,000 tons to 37,000 tons based on greater demand from the food sector as biodiesel use is expected to remain flat at 14,000 tons, the same level in 2016/2017.

Trade

2017/18 soybean exports are forecast at 2.83 million tons, a decline of 11 percent from last season. This decline is due to lower exportable supplies as result of lower production. Over 90 of Uruguay’s soybean suppliers are exported as whole beans. Contacts have noted that due to high upstart and operating costs, there is little prospect that Uruguay will expand the processing of soybeans for domestic use and exports. The country will continue to focus on producing whole beans for export. Due to higher production, 2016/17 exports are revised up to 3.18 million tons. As mentioned previously, this export forecast is based on the expectation that there will be no interruption in shipments to China due to the requirements of the new phytosanitary protocol. Contacts indicate that if shipments were to decline, exporters would attempt to offset this by shipping more to Russia and markets in Southeast Asia and the European Union.

As of April 24, traders report that two shiploads of Uruguayan beans are own their way to China. They are monitoring the shipments closely as they hope they it will meet China’s requirements after extensive cleaning and inspection of the cargo.

China encompasses the majority of Uruguay’s export market share at over 75 percent. Other major markets include the European Union, Bangladesh, Turkey, Indonesia, Brazil, and Peru. More recently, Argentina has become a significant importer of Uruguayan soybeans after the Argentine government permitted the importation of soybeans in January 2016. These additional soybean supplies are a great boon to Argentine processors as they help increase utilization of their excess crush capacity. Based on updated trade data, 2015/2016 exports are revised up to 2.24 million tons.

Due to the fact that the majority of Uruguay’s soybeans are exported, locally produced soybean byproducts – oil and meal – are not enough to fulfill domestic consumption needs. As such, over 75 percent of Uruguay soybean meal supplies are expected to come from imports for 2017/18. In the case of soybean oil, more than half of supplies come from imports.

2017/18 soybean meal imports are forecast at 245,000 tons, an increase of almost 11 percent from last year. Soybean meal is imported for feed use in the livestock, pork and poultry sectors. Based on updated data, 2016/17 and 2015/16 meal imports are revised down to 220,000 and 186,000, respectively.

Beginning in 2014/2015, Uruguay began exporting higher volumes of meal Primary markets for this meal include the European Union (Spain), India, Bangladesh, Kuwait and Nepal among others. Based on this growing trend, Post estimates 2017/18 meal exports at 34,000 tons. 2015/16 and 2016/17 meal exports are revised to 23,000 and 30,000 tons, respectively.

2017/18 soybean oil imports are forecast at 22,000 tons, an increase of almost 30 percent from the previous year. Domestic production of soybean oil continues to decline as crush slows down. As such, Uruguay is importing more oil in order to fulfill growing human consumption as industrial use for biodiesel is forecast to stagnant. Based on updated trade data and growing food sector consumption, 2015/16 and 2016/17 oil imports are revised to 12,000 and 17,000 tons, respectively. There are no soybean oil exports; although local contacts have indicated that there is some interest by the crush sector.

Stocks:

Uruguay holds very little stocks of soybeans or soybean products as practically the entire product is crushed, consumed or exported. Uruguayan producers and exporters do not share the habit of neighboring Argentina who holds stocks for marketing reasons. Historically, stocks vary between 30,000 to 100,000 tons a year, depending upon production. 2017/2018 ending stocks are forecast at 39,000 tons.

Policy:

Since the 2014/15 season, producers have been required to submit a mandatory natural resources management and soil use plan to the Ministry of Agriculture. This requirement corresponds to a national conservation policy (Decreto 405/2008) and mandates that plans include information on soil use, irrigation, crop rotation, field drainage, fertility, drought risk, and erosion risk. It must be completed by a qualified agronomist and every owner that farms more than 100 hectares is required to turn one in. Furthermore, if the land is rented, the requirement drops to 50 hectares of land. It is the owner’s responsibility to ensure a soil management plan is submitted or face potential fines/sanctions. In the long run, it is expected encourage greater crop rotation to balance soybeans with other grain or oilseed crops. Producers’ acknowledge the value of this policy and its efforts to ensure crop rotation. More recently, agronomic (deteriorating soil fertility) and economic pressures (more lucrative crop alternatives) have spurred crop rotation in addition to this legal requirements.


Oilseed, Soybean
Oilseed, Soybean2015/20162016/20172017/2018
Market Begin YearApr 2016Apr 2017Apr 2018
Uruguay
USDA Official
New Post
USDA Official
New Post
USDA Official
New Post
Area Planted1150
1200
1300
1200
01200
Area Harvested
1140
1170
1300
1150
0
1200
Beginning Stocks
33
33
0
14
0
49
Production
2208
2400
3300
3400
0
3000
MY Imports
27
26
15
15
0
0
MY Imp. from U.S.000000
MY Imp. from EU000000
Total Supply226824593315342903049
MY Exports
2100
22352970318002830
MY Exp. to EU1501501501500150
Crush150130200100080
Food Use Dom. Cons.000000
Feed Waste Dom. Cons.1880201000100
Total Dom. Cons.168
210
220
200
0
180
Ending Stocks
0
14
125
49
0
39
Total Distribution226824593315342903049


Meal, Soybean

Meal, Soybean2015/20162016/20172017/2018
Market Begin YearApr 2016Apr 2017Apr 2018
UruguayUSDA OfficialNew PostUSDA OfficialNew PostUSDA OfficialNew Post
Crush150130200100080
Extr. Rate, 999.99990.78670.78460.7850.800.8
Beginning Stocks
000
0
0
0
Production11810215780064
MY Imports2201862002200245
MY Imp. from U.S.000000
MY Imp. from EU000000
Total Supply3382883573000309
MY Exports27233430034
MY Exp. to EU000000
Industrial Dom. Cons.000000
Food Use Dom. Cons.000000
Feed Waste Dom. Cons.3112653232700275
Total Dom. Cons.311
265
323
270
0
275
Ending Stocks000000
Total Distribution
338
288
357
300
0
309

Oil, Soybean

Oil, Soybean

2015/2016

2016/2017

2017/2018

Market Begin Year

Apr 2016

Apr 2017

Apr 2018

Uruguay

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Crush

150

135

200

100

0

80

Extr. Rate, 999.9999

0.1867

0.1926

0.185

0.19

0

0.1875

Beginning Stocks

0

0

0

0

0

0

Production

28

26

37

19

0

15

MY Imports

10

12

10

17

0

22

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

38

38

47

36

0

37

MY Exports

0

0

0

0

0

0

MY Exp. to EU

0

0

0

0

0

0

Industrial Dom. Cons.

17

17

20

14

0

14

Food Use Dom. Cons.

21

21

23

22

0

23

Feed Waste Dom. Cons.

0

0

0

0

0

0

Total Dom. Cons.

38

38

43

36

0

37

Ending Stocks

0

0

4

0

0

0

Total Distribution

38

38

47

36

0

37