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July 23, 2019

Soybean Supply to tighten in Brazil between September and January

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The ongoing trade dispute between the United States and China has resulted in a strong demand for Brazilian soybeans. According to some estimates, Brazil will only have approximately 8 million tons of soybeans left to export between September 2019 and January 2020. That is according to an interview SoNoticias conducted with the director of SIMConsult, Liones Severo.

By the end of July, Brazil should have exported 54 million tons of soybeans with another 8-9 million tons exported during the month of August. If that turns out to be the case, then there will only be approximately 8 million tons of soybeans available to export between September and January when the new crop starts to become available.

China has been the destination for 74% of Brazil's soybean exports thus far this year and it could end up being closer to 80% by year's end. Last week alone, China purchased 20 vessels of soybeans from South America - 14 from Brazil, 4 from Uruguay, and 2 from Argentina.

While Brazil will remain China's major supplier of soybeans, Brazil does not have the supply of soybeans to meet the entire demand from China. China will purchase soybeans from other South American countries, especially Argentina, and they could eventually be forced to purchase some American soybeans as well.

As the soybean supply tightens in Brazil, domestic processors are expected to start bidding up prices for soybeans and soybean meal to meet their demand. This could start to erode Brazil's price advantage in the international market.

Another concern for Brazilian grain companies is the exchange rate between the Brazilian real and the U.S. dollar. The current exchange rate is approximately 3.7 to 1, but if the Brazilian currency strengthens to 3.5 to 1, Brazil would lose its competitive advantage in the international marketplace.