Brazil's 2019-20 soybean planting season is off to a slower start than last year, as lower prices and doubts about Chinese demand may lead to less spending on crop technology, such as seeds, fertilizers and pesticides, and even a cut in total planting area.
Total soy planting area is expected to increase by 1.9pc in the 2019-20 crop, lower than the 3pc average growth rate over the past five years, according to Brazil's agriculture statistics agency (Conab).
International soy prices are being pressured by large US inventories, which are expected to be 20mn t, the largest US carry-over inventory ever, according to Leonardo Amazonas, Conab's market analyst.
In May 2018 CBOT soybean prices averaged more than $10/bu, but they fell below $8/bu in May of this year. Prices have risen since then but remain under pressure and mostly under $9/bu amid the trade war between the US and China. Prices have been rising since September because of the colder weather in the US that could damage soybean fields, but this trend could end with new US Department of Agriculture (USDA) crop data released today. It showed that the 54pc of US planted area is in good or excellent conditions, up by 1pc from the previous week.
The November contract closed at $9.405/bu yesterday, 5.5pc higher than a year ago.
"There is a price limitation as a function of the trade war," Rabobank analyst Victor Ikeda said. "One moment it seems to move towards an agreement, others it intensifies."
Last week new US contract sales of soybeans to foreign countries reached 2.093mn t for 2019-20 marketing year delivery, with about 56.3pc destined for China. This comes as Brazil finds itself with less soybeans available because it is in between seasons, and the 2019-20 is planting is underway.
"At some point, China and US will reach an agreement. We have to consider that," said Guilherme Bellotti, Itau BBA analyst.
Brazil produced less soybeans in 2018-19 than the previous year, which means fewer soybeans available for China to buy. Soybean exports are expected to reach 73mn t in 2019, down from 83mn t in 2018, according to Brazilian National Grain Exporters Association (Anec).
Chinese demand for Brazilian soy may also be lower this year because of the African Swine Fever (ASF) epidemic, which may cut soymeal demand by as much 11pc from a year ago as a large proportion of the Chinese pig herd has been destroyed, according to US consulting firm INTL FCStone.
Chinese soybean demand was 66.39mn t last year according to the USDA, with about 20mn t of meal used to feed pork according to Brazilian bank Itau BBA.
Chinese soybean supplies are considered ample, thanks to the country's grain production capacity and large inventories, according to the official Chinese news agency. China's soybean area planted is expected to reach 9.3mn ha by 2020.
Even though the outlook is not ideal for Brazilian producers, Aurelio Pavinato, chief executive of grain producer SLC Agricola said it is still favorable.
"I don't see the prices for 2019-20 lower than the 2018-19 season," he said.
Lower US soy production should help prices, Pavinato said, and the latest US Commodity Futures Trading Commission (CFTC) report showed speculative funds are betting on rising soybean prices for the week ended 8 October. The premium paid for Brazilian production is falling at ports, however, to around 70¢/bu this week, down from $1.20/bu at the beginning of September.