Rio Grande Agrícola has many stories to tell on this channel and we hope that it will be very useful to take a few minutes to discover the path we have taken along our journey in search of markets and good customers.
With just a few years of existence, Rio Grande Agrícola has been acting in an innovative way in the international grain market, providing differentiated marketing alternatives for its customers.
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Destination of Brazilian soybeans in 2023 and main buyers of Brazilian soybeans.
Source: Comexstat
Brazilian soybeans exports exceed 72.467 million tons in the first seven months of the year 2023, representing 19.73% above the same period of the year 2022.
Of the 72.467 million tons exported, around 50.42 million tons were destined for China, corresponding to 69.58% of the volume exported in the first seven months of this year. China is the main buyer of Brazilian soybeans and, compared to the previous year, purchases from China increased by around 24.83%, whose imports totaled 40.39 million tons in the same period of 2022.
In second place is Argentina, which imported, in the first seven months, approximately 3.49 million tons. The reason is due to the severe drought suffered by the country, whose harvest was less than half of the initial estimates, with Brazil being one of the major suppliers for the Argentine market.
Soybeans exports in 2023: Brazil exceeds 72.46 million tons
Source: Comexstat
With record production for the 2022/2023 crop, around 154 million tons, Brazil naturally exported more soybeans, totaling 11.94 million tons more than the year 2022, compared to the first seven months of each year. The 10 main buyers of Brazilian soy purchased around 63.46 million tons, representing 87.57% of the total exported in 2023.
What sets the list apart are China and Argentina, the former taking advantage of prices and the market, with an average of US$ 525.47 in net FOB value in 2023, purchasing the product at lower prices than in 2022, with average of US$ 583.88 in net FOB value, corresponding to 10% lower, if compared to the first seven months of each year. Argentina, on the other hand, needed to import the Brazilian oilseed due to the severe drought that devastated local agriculture for almost 2 years.
Biggest soybean buyers from Brazil in 2023
Estimates of soybean exports from Brazil are approximately 97 million tons in 2023, compared to 78.73 million in 2022, corresponding to an increase of approximately 24%.
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Projection of purchases of the main agricultural commodities imported by China.
Source: Noticias Agrícolas and graph from S&P Global and World Bank
Despite the Chinese economy being quite fragile and in need of more stimuli, food consumption remains high, not being affected like other sectors of the economy.
The post-pandemic still reflects on consumption and the lack of investment by Chinese consumers in the sector, especially capital goods, such as civil construction, vehicles, appliances and jewelry - preferring to save rather than spend - and, even with the efforts of the Chinese authorities, it still it was not enough to curb deflation.
At the same time that the sluggish economy is reflected in the reduction of imports of metallic commodities, for example, such as copper, whose main consumer is civil construction, followed by the machinery and consumer goods industry, food imports continue to grow.
In the period from January to July, Chinese soybean purchases totaled 62.3 million tons, 15% more than in the same period last year, according to data from the General Administration of Customs. Already imports of beef and by-products, in the first half of 2023, were 1.25 million tons, 6.3% more than in the same period last year, a year that broke a record for purchases of the product by China, reaching 2.69 million tons, with 42.38% of this product being of Brazilian origin.
The chart below shows that China ranks first in global imports of soybeans, corn, rice, sorghum, barley, beef, pork; third in imports of chicken meat and fourth in wheat. For 2032/33, projections are that, in corn, it will become the second largest importer in the world, as well as assume the first position as a buyer of chicken meat.
Ranking China's food imports over the next 10 to 12 years.
Source: Noticias Agrícolas and graph from S&P Global and World Bank
A study led by the USDA (United States Department of Agriculture) shows that income growth and improvement in Chinese housing standards were key fuels to promote the growth of agricultural imports in the country over the last 20 years. In this same interval, grain consumption decreased and protein consumption increased. Per capita consumption of chicken meat, for example, increased by 32%, soy oil consumption more than quadrupled and milk consumption tripled.
Recent events such as the trade war with the US in 2018, the Covid-19 pandemic and the war between Russia and Ukraine that has lasted more than a year have exposed some of its vulnerabilities when it comes to food security for the Chinese giant.
However, food security remains one of the priorities at the top of Beijing's list - a recurring theme - whose government has been seeking solutions to ease its dependence on food or raw materials to produce it internally.
As long as there is no internal solution, China will continue buying food from the rest of the world, regardless of the price, respecting the limits between supply, demand and security stocks, because it is dependent and needs to feed its inhabitants, but with the clarity which will always aim to reduce supply risks, consequently avoiding - at all costs - social tensions and more economic discomforts than the current ones.
Corn prices comparing domestic costs in China with Brazilian domestic costs.
Source: RGA database.
Brazilian corn prices are arriving in China with highly competitive values for the Chinese domestic market, if compared to the domestic price minus expenses and taxes. Considering Brazilian internal costs, freight and currency fluctuations, Brazilian prices can arrive in China with an advantage of US$ 40.00 to US$ 50.00.
Understanding the Chinese market:
The Dalian Stock Exchange dictates domestic prices in China and daily releases local prices, with trading volume and prices in Yuan (RMB). These prices are usually charged by purchase costs (imports) and compared with domestic demand, as well as the prices of inputs and feed and, consequently, of food. Notably, one of the factors that may be influencing these prices is the devaluation of the Chinese currency, which in recent months has been between 7% and 7.5%.
Another situation that indicates concern is the weather conditions in northeast China - this region is the most significant production zone for Chinese maize. At the beginning of the year, there were occasional rains that created a moisture deficit. However, the main concern is higher than normal temperatures that persist for a significant period of time. In recent days, China has suffered flooding with the arrival of a super typhoon, which hit the corn and rice producing regions, flooding large volumes of areas, indicating a potential loss in production of approximately 5 million tons of corn, i.e. , Chinese production potential may be compromised by prevailing conditions.
Another determining factor is that China's wheat crop was impacted by excessive rainfall at harvest. This reduced the yield a bit and had a bigger impact on quality, so more wheat could fall into the feed category and will offset the potential lower corn production.
The USDA is forecasting Chinese corn production in 2023-24 at 280 million tons, a new record, but there are still doubts as to whether the losses caused by the super typhoon that hit the continent this month were computed, and it is likely that we will have further adjustments to the newsletters for the month of September. Imports are forecast at 23 million tonnes, up 5 million tonnes from 2022-23.
China, on the other hand, has been a significant benefactor of the Black Sea Grain Initiative (the agreement by Russia, the UN, Turkey and Ukraine to allow the passage of Ukrainian grain), so China has been the biggest market for Ukrainian corn. The continuation of the deal looks tenuous. Ukraine may not be able to match 2022-23 export volumes to China. This suggests there could be incremental business for both Brazil and the US if China imports 23mt in 2023-24.
Weather conditions in northeast China may reduce the Chinese corn crop. If there was a reduction of 10 million tons, there is potential for additional Chinese corn exports. The steady rise in corn futures from July to September maturities in Dalian indicated that these concerns already existed.
However, we know that final imports of Chinese maize in 2023-24 will not only be a function of the market, but also, depending on China's import policies and quota system, which will play a role in determining final import volumes.
Comparative:
Brazilian corn is far from being within the calculation bases of the Chicago Stock Exchange (CBOT) and this disparity raises doubts for the Chinese buyer, perhaps for this reason that business is always blocked, because the world is used to the Chinese buying based on prices from CBOT. So have the fundamentals changed? Yes, there is a lot of internal pressure on port costs and freight costs, especially due to the high demand for services, in both cases (ports and freight), which is inconsistent with the usual premium calculated by analysts (premium = market price minus price in the interior and /or premium = "American" producer price - CBOT + more costs to ship - less logistical and port efficiency).
Why is there a mismatch? Because if we deduct the market price minus port costs, which are higher this year, with an increase in waiting times for vessels and, furthermore, logistical inefficiency, producers in states like Mato Grosso would have prices below R$ 30.00 a bag, which would be practically a sale at cost or loss, therefore, those who can wait and sell at a better price let it and offer. This pressure pushes the producer price cap above the CBOT and puts pressure on premiums, forcing buyers to offer more to make their scheduled shipments.
Comparatively, if we attribute a shipment in Paranaguá, which has broken export records this year, and the origin is northwest of Paraná and Mato Grosso, the average price reaches R$ 68.00 per bag for a FAS port price in Paranaguá, more costs and margins, raising our prices by around R$5.00 above the CBOT, which results in a higher premium of US$0.43 per bushel or approximately US$16.75 per ton.
However, after calculating this price variation, we add US$ 5.00 of risk and the extra costs of the port, raising the "Fobis" condition from US$ 7.00 to US$ 10.00, adding the financial cost of 1.5%, we arrive at the price with zero risk on the sale, and the unbelievable US$ 246.84, as per the table above for August and September maturities. This price of US$246.84 compares with the Chinese domestic price minus costs and taxes, as well as insurance and freight of US$45.00 (raised to contract standards and China usually calculates US$40.00 as a marker), we arrive at the FOB Brazil x China price of US$ 287.61, representing US$ 40.77 in savings for the Chinese buyer.
It is important to remember that there is still an internal cost of transport in China, but we understand that Chinese logistics efficiency surpasses us on a large scale (waterways, railways, first world roads) to dispose of its production and purchases.
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