China’s increasing demand for soybeans played a key role in stimulating growth in Brazil’s agricultural exports. Brazilian exports are likely to continue to grow significantly, particularly if rising demand from China further boosts Brazilian exports. With the Brazilian government now providing higher domestic economic incentives to the agricultural sector in response to COVID-19, Brazil is expected to continue increasing its agricultural competitiveness over the next decade.

Brazil is the largest country in South America. With over 200 million people, Brazil is the world's fifth-most populous country. Following the United States, it is the second-largest economy in the Western Hemisphere. However, the COVID-19 pandemic exposed Brazil to unprecedented health and economic challenge. Despite the recession, Brazil’s macroeconomic framework is expected to remain broadly adequate.

Brazil’s macroeconomic policies have played an important role in its emergence as one of the top exporters of agricultural products, including soybeans, corn, cotton, sugar, coffee, orange juice, and meat. However, extended periods of currency depreciation, low energy costs and interest rates, rising demand for biofuel feedstocks, and macroeconomic fluctuations have contributed to Brazil’s emergence as a competitor for the United States in global agricultural markets.

The agricultural sector is a key contributor in Brazil’s economy. Primary agricultural production contributed 8 percent of the country’s gross domestic product (GDP) in 2019, and the whole agro-industrial processing and distribution sector accounted for 32 percent of the Brazilian GDP.

Brazil has made a significant transformation from being an exporter of tropical agricultural products such as coffee, sugar, and cacao in the 1960s and 1970s to becoming a major global supplier of soybeans, corn, cotton, sugar, coffee, orange juice, and meat in the 2000s.

The growth of Brazilian agriculture is rooted in the development strategy adopted in the mid-1960s that emphasized technologies and farm management practices best suited to tropical latitudes. From the mid-1990s onward, with higher world prices for agricultural commodities, Brazil’s sustained agricultural growth has been largely investment-driven, marked by rising foreign investment and increased influence of multinational corporations in production agriculture and food processing.

Rising production increased the sector’s ability to grasp export opportunities, such as the growing demand for feedstuffs in China and other foreign markets. Brazil’s soybean production closely rivals that of the United States, with each accounting for about one-third (33-36 percent) of world production. Brazil is also the world’s third-largest corn producer, with about 8 percent of global production. During 2005-19, Brazil exported an annual average of 42 million metric tons of soybeans and 18 million metric tons of corn.

China’s increasing demand for soybeans played a key role in stimulating growth in Brazil’s agricultural exports. Brazilian exports are likely to continue to grow significantly, particularly if rising demand from China further boosts Brazilian exports. Total Brazilian soybean exports to China increased from 7.2 million metric tons in 2005 to 68.6 million metric tons in 2019, aided by the substantial depreciation of the real. China is Brazil’s major trading partner, as the destination for 30 percent of Brazilian exports and the source of 20 percent of Brazilian imports.

Future Brazilian agricultural export growth is tied closely to worldwide economic growth. The 2020 USDA baseline projected a long-term global trend growth in demand leading to greater demand for Brazilian commodities. With the Brazilian government now providing higher domestic economic incentives to the agricultural sector in response to COVID-19, Brazil is expected to continue increasing its agricultural competitiveness over the next decade.

RECORD GRAIN CROP IN 2020/2021

Brazil is expected to produce a record grain crop in 2020/2021, despite the drought that affected planting in some regions. The National Supply Company (Conab) projected 268.9 million tons of grain production, 4.6% more than 2019/2020.

The South American country is the world’s leading producer and exporter of soybeans. Its soybean production has increased dramatically since the 1970s. This growth, driven by national and international demand together with rising prices for grain, oil and animal feed, makes soybean production an attractive option for thousands of farmers. There are currently around 240,000 farms producing soybeans in Brazil. Mato Grosso state is the single largest producer region of soybeans in the country.

USDA’s Brasilia post projects its 2020/21 forecast for soybean production at 131.5 million metric tons (MMT). Post maintains its 2020/21 soybean export forecast at 85 MMT. China is expected to remain the top importer of Brazilian soybeans.

With a voracious appetite for Brazilian soybeans out of China, Brazilian stocks will remain at very low levels. Although the government is concerned with the scarcity of beans on the domestic market and the consequent impact on inflation, USDA does not anticipate any export restrictions. Instead, traders and producers alike are focused on sales to take advantage of the upside in prices.

THE THIRD-LARGEST GLOBAL CORN PRODUCER

Following soybeans, corn is the second-largest crop in the country, with a 20-percent share of the planted area. It is Brazil’s most important cereal, followed by rice and wheat. Brazil has several advantages in corn production, including ample land and a favorable climate with a long growing season in much of the country that enables two harvests per year. Technological advances in soil management and improvements in hybrid corn varieties have also spurred the expansion of corn production.

Brazil is the third-largest global corn producer and the second-largest corn exporter. With production expanding faster than domestic food and feed demand, attractive export prices moved most of the increased production into larger exports. However, soybean trade patterns influence the corn trade. Because soybeans are more valuable per ton and denser than corn, they are cheaper to transport. Their higher value also makes them more expensive to store, whether due to financing costs or opportunity costs associated with holding the commodity. These factors tend to give soybeans priority access to logistical infrastructure; when transportation and handling bottlenecks occur, most notably port congestion in Brazil, soybeans get priority.

USDA expects Brazil’s corn production for MY 2020/21 (March 2021-February 2022) at 107 MMT. The export forecast for the same season is at 37 MMT, based on expectations for expanded production, as well as the likelihood that the BRL will remain weak as Brazil’s GDP growth sputters in the wake of the coronavirus pandemic.

Brazil is also one of the world’s largest consumers of corn. The use of corn has grown substantially over the last 20 years, supported mostly by feed use. Corn consumption has nearly doubled over the last two decades, as the country became the world’s largest chicken meat exporter and fourth-largest pork exporter. Brazil’s large poultry and pork sectors consume the vast majority of the corn crop each year.

USDA forecasts a total of 69 MMT domestic consumption for MY 2019/20, based on increased poultry and pork production, as well as the continued expansion of the corn ethanol sector, despite an initial slowdown in production related to the coronavirus pandemic.

RICE PRODUCTION

Brazil is the ninth largest rice producer in the world. Except for Asia, it is the largest producer and consumer of rice. Rice is a staple food in Brazil, with many Brazilians consuming it with black beans one or two times every day. According to the National Supply Company (CONAB) data, nearly 95 percent of Brazilian consume rice. However, the annual consumption volume has trended downward over the last two decades, as Brazilians have been replacing some of their rice consumption with other starchy staples, such as bread, potatoes, and manioc.

USDA forecasts a total of 7.45 MMT rice consumption for MY 2019/20, as well as 7.4 MMT of consumption for the MY 2020/21. USDA’s milled rice production estimate for MY 2019/20 is at 7.6 million metric tons, based on year-over-year reduced area offset by record yields in several major production regions.

DEPENDENCE ON WHEAT IMPORTS

Brazil is a major wheat producer in South America, generating grain yields of around 6.5 million tons per year. The majority of wheat cultivation in Brazil takes place in temperate climate zones of the southern states of Rio Grande do Sul and Paraná.

However, wheat production is not enough to meet domestic needs. Imported wheat typically accounts for more than half of Brazil’s domestic consumption, making Brazil one of the largest global wheat importers. In the long term, Brazil is working to expand the wheat area and decrease the country’s heavy dependence on imports to meet domestic demand and reduce dependence on imports from Argentina.

USDA estimates 6.6 MMT wheat production for MY 2020/21 (October 2020-September 2021). USDA’s MY 2019/20 wheat import estimate is at 7.25 MMT and 6.5 MMT for MY 2020/21. In response to increased consumption due to the coronavirus pandemic, USDA raised its forecast for Brazil’s wheat consumption in MY 2019/2020 to 12.15 MMT. USDA forecasts 12.2 MMT consumption for MY 2020/21.

Per-capita consumption of wheat in Brazil has slumped in recent years but has been offset by population growth, leaving the overall wheat consumption level static. As with other staple products early on in the COVID-19 pandemic, Brazilians stocked up on wheat flour and other wheat-based products like pasta and industrially produced breads as social distancing orders went into effect in March and April. The Brazilian Manufacturers Association of Biscuits, Pasta, and Industrialized Bread & Cakes (ABIMAPI) reported the industry's sales grew by 15 percent year-over-year in the first few months of 2020. That was largely a result of consumers stocking up on staple ingredients as restaurants and other businesses shut down across Brazil to stem the spread of the COVID-19 pandemic.

SOURCES: www.ers.usda.gov www.fao.org