Superstar soybean in South America

Navigating challenges and embracing advancements.

In a promising turn of events for the agricultural sector, South America is on the brink of a significant soybean harvest in 2024. Brazilian economist Marcela Marini, speaking at the V International Soy Congress, projected that Argentina, Brazil, Paraguay, Uruguay and Bolivia are all gearing up for record soybean production levels, translating into a notable increase in soybean exports. Brazil and Argentina alone are anticipated to surpass 210 million metric tons, marking a rise of over 22%. 

This positive news comes after La Niña conditions impacted southern rainfalls in recent years, leading to a drastic reduction in output in Argentina and Uruguay, reaching up to 40% in the last season. The arrival of El Niño is not just expected to aid recovery but is set to reach unprecedented levels, especially as Brazil can offset productivity changes between its northern and southern regions. “According to the reports we have been seeing, exports derived from the agricultural complex, in 2024 should be in the order of USD 32 billion. This represents slightly more than USD 10 billion in net exports than in 2023,” stated an agricultural producer in Argentina. 

However, amidst this optimistic scenario, Latin American nations face challenges within their supply chains. A member of a capital management firm commented that “in fact, in the last year, Brazil was too optimistic, hitting a record in production and ended up throwing some of it.” This resulted from insufficient storage capacity that remained unchanged while output increased, leading to a deficit of 126 million metric tons, compared to 86 million metric tons in 2021.

Argentina, heavily reliant on trucking which is already over 50% costlier than for US soy producers, faces efficiency issues that can affect neighbouring countries like Paraguay and Uruguay using Argentinian processing facilities. A member of an investment, hedge fund and credit opportunities firm in São Paulo emphasised that Argentina is facing significant challenges. “The situation has been incredibly tough due to factors such as the El Niño-induced drought and detrimental government policies, including high production taxes and unfavourable exchange rates for Argentinian soybean exports.”

“The situation has been incredibly tough due to factors such as the El Niño-induced drought and detrimental government policies.”

Member of a capital management firm, São Paulo

These bottlenecks have been pushing soybean prices upward and are likely to face more pressure with increased yields. “Brazil needs to further develop its logistics, such as storage and roads,” reported the member of the São Paulo capital management firm. “The most important area for soybeans is the central west (Matto Grosso) but the main ports are 2000 kms away, with deficient roads.” Balancing efficiency against the temptation of higher returns is a challenge, especially considering the possibility that China, responsible for approximately 60% of the world’s soy imports, “100 million tons a year,” may have reached peak demand.

China’s “availability of land is scarce, and the land quality is very poor,” explained the capital management member, whereas “Brazil has the combination of available land, weather conditions and political and legal framework to produce the food the world needs.” The agricultural producer also seemed to think that “local production can cope with this increase, without any problems. There have been many years of technological development, investment and training.”

Technology is set to play a pivotal role in enhancing yields and ensuring long-term productivity. “Today we have satellite support that allows us to predict rainfall, or the lack of it, quite accurately.” The agriculture producer continued, “we have the support of different apps on our mobile phones, there is a huge development of sensors, genetic engineering, drones, digital equipment, all of which has impacted on production figures, since we started using them.” Improving efficiency in agricultural inputs, including fertilisers, pesticides and biological alternatives, will be crucial for sustained progress. “Brazil has incorporated so much technology that most farms look like a science-fiction movie: drones, smart irrigation, use of artificial intelligence, precision farming in general, and of course transgenic seeds, resistant to pests and insects,” exclaimed the investment, hedge fund and credit opportunities firm employee in São Paulo .

“Brazil has incorporated so much technology that most farms look like a science-fiction movie: drones, smart irrigation, use of artificial intelligence, precision farming in general, and of course transgenic seeds, resistant to pests and insects.”

Agriculture producer, Argentina

Effective planning based on data analysis will also be essential to optimise available land usage, especially as deforestation pressure limits expansion possibilities. The capital management member explained that “the great potential of Brazil is that it now has 70 million hectares devoted to soybeans, but it could double that area easily. Contrary to the general belief the country is very strict regarding ESG requirements, and it ensures a very sustainable use of the land.”

Regarding prices, they are set at the international level, “If the harvest is very good worldwide, the prices will be one, and if not, they will be another,” replied the agricultural producer. This is similar to other commodities and unfortunately leaves little influence for local producers, who just “have to adapt”. While a highly positive local production context can potentially lead to price decreases, individual producers have limited impact on the global pricing dynamics. According to a member of a capital management firm, “prices are set in Chicago and cost cutting in logistics, may create a certain advantage to offer better prices to the farmer, ensuring thus larger supply quantities. Quantities are key since profits are quite standard around 5% on Chicago price once the cost of the grain and all logistical costs are deducted.”

“If the harvest is very good worldwide, the prices will be one, and if not, they will be another.”

Agriculture producer

South America’s agricultural sector stands at the cusp of a transformative period, marked by the promise of a significant soybean harvest in 2024. Projections for record production levels in key nations like Argentina and Brazil reflect the region’s resilience in overcoming challenges like weather-related disruptions and supply chain bottlenecks. Sustainable practices, technological innovations and strategic investments are pivotal in ensuring long-term growth. As South America navigates these challenges, its agricultural landscape demonstrates remarkable potential, making strides towards a more prosperous and sustainable future.

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