BRAZIL'S SOYBEANS: AN EMERGING THREAT TO US EXPORTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700050036-6
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 13
• Document Creation Date: December 20, 2016
• Document Release Date: March 10, 2006
• Sequence Number: 36
• Publication Date: April 1, 1973
• Content Type: IM

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Confidential
intelligence Memorandum
Brazils Soybean :? An Emerging Threat to US Exports
CIA
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Confidential
ER IM 73-39
April 1973
Copy N0 92
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Brazil's Soybeans: An Emerging
Threat to US Exports
April 1973
The United States continues to dominate the soybean market, but Brazil's output
and exports h: ve been skyrocketing. Prospects are for a further rapid rise in Brazilian
sales, partly at the expense of US soybean exports. Soybeans make up 221I, of total US
agricultural exports and about 4% of total US exports; they have been the most dynamic
major US agricultural export.
? Brazil's share of' world exports has jumped from 3% to 13'%, since 1968.
? The US share slipped from 92`% to 86"0.
? Brazil is expected to capture nearly 20'/, of the market this year.
Brazilian soybean exports have not yet cut into US sales volume, but they threaten
future gains. Both the United States and Brazil have benefited from an extraordinary spurt
in world demand that has boosted current soybean prices to a rc:,ord high. US soybean
exports could exceed US $3 billion in 1973, up from $2.1 billion last year. Because of*
the record current harvest and continuing high prices, Brazil's soybean exports in 1973
could reach $725 million - considerably more than double last year's. But prices should
fall by the end of' the year: the United States also expects a bumper harvest this fall,
and Peru's fishmeal supplies - a close substitute in livestock feed - should partly recover
by then.
Brazil is almost certain to gain a larger share of' world soybean exports in the long
run, especially if its competition pushes the price below the historic norm of' a little more
than twice that of' corn. At lower prices, some US farmers would switch land to other
crops such as corn, but Brazilian farmers probably would continue to find soybeans most
profi table.
? At a minimum, Brazil will have 25% of' the world market by 1980, which
could hold US earnings to about $3 billion if prices have returned to
their average of the late 1960s.
? At a maximum, if it meets its 1980 output goal, Brazil could supply
about hall' the world market, reducing US soybean earnings to only about
$2 billion under the same price assumptions.
Note: Comments and queries regarding this publication are welcomed. They may be
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The World Soybean Market
I. Three countries--the United
States, the People's Republic of
China, and Brazil-account for almost
95%%r of the world's soybean produc-
tion. World output, which has grown
about I''/2 million metric tons annually
since 1968, now stands at about 48
million tons. The United States and
Brazil have provided all of the recent
growth (see Figure I). Chinese output
has declined and now is an insignifi-
cant factor in the world market. At
the other extreme, Brazil has been
expanding its production about 50%
annually in recent years and now is
the United States' only important
competitor. Although Brazil still
accounted for only about 7% of world
output in 1972, it has provided virtu-
ally all of the growth in world exports
since US surplus stocks were sold off
in 1970 (see Figure 2). Brazil's market
share increased from only 3% in 1968
to 13% in 1972, while the US share
dropped from 92% to 86%.
Figrrrl. I
World Soybean Output
Million metr-icTolvi
10
Its
0000-~11111~
Hrnzil
0.5 1 , I i l
IOOO (i9 70 71 'Data me estimated
',1!,794 A 7^
2. World demand for soybeans in recent years has been largely a func-
tion of rapidly rising consumption of soybean meal as animal feed, even
though human consumption of soybeans and oil also has continued to rise.
Western Europe, especially the European Community countries, and Japan
have been the major importers. The soybean crushing process normally
yields about 79'/, meal and 171x, oil, ii much higher meal ratio than that of
other oilseeds. Soybeans have been supplying an increasingly large share of'
the world's market for high-protein animal feed, competing with other
oilseeds and fishmeal. Import demand for high-protein meal of all types has
been rising by about 2 million tons a year because of worldwide efforts to
expand livestock production. As foreign income levels and meat consump-
tion increase, demand for these meals grows even faster because of' increased
reliance on feedlot operations as th-' quickest-and sometimes the only-way
to boost meat production.
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World Net Exports of Soybean Meal and Oil*
Milliiu+ IVI+?~rir'I'unv
3. After several years of' excess supply, the soybean market tightened
and prices skyrocketed in late 1972 and early 1973. Two factors have been
mainly responsible for the spurt in demand in recent months. When Peru's
anchovy catch failed in mid-I 972, almost two-thirds of' the world's fishmeal
supply was afYected.1 Because fishmeal is even richer in protein, each ton of'
fishmeal lost increased soybean demand by 1'/ tons. Subsequent large Soviet
purchases of grain and soybeans further intensified price pressures. In the
face of' this extraordinary demand, exportable soybean supplies increased
Iittle. Although harvests in both the United States and Brazil hit new highs in
1972, carryover stocks had fallen to very low levels by the beginning of the
marketing year (s% e Figure 3). As a result, soybean prices per bushel soared
f'ronl the $2.70 average of' the late 1960s to $3.80 in mid-December and then
to record highs averaging about $6.25 during the last few weeks (see Fig-
tire 4).
Factors Underlying Brazil's Soaring Output
4. The Brazilian government has beets actively encouraging soybean
production for several years. !t has carried out an intensive publicity
campaign in rural areas emphasizing the advantages of soybeans over other
products. State governments are also pushing soybeans: Rio Grande do Sul,
for example, is sponsoring a campaign for "3 million tons in 1973," a 50`;o
boost in state output. These campaigns have been backed up with technical
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t''it;,,,r. a
World Export Availability and World Imports
of Soybean ldi'eal*
Million MI-trif-Tolill
Wln'I(I Export Avnilability
11)li7/(iN (i8/(i9 69/70
lnchulinrl rrovrl runn,i( of Brune ripur?i..
"Ainr?ker yrvu' i! Orl uhrr?-: O Frplnrnhnr?1.
Soybean Prices
US $ Vol. 111101(d
Brazil
Other
71/7'2 72/7?
assistance and price supports guaranteeing farmers a profitable market for
their output. Brazil has raised the support price several times over the past
few years, mainly to insure adequate credit to soybean farmers from lenders
who use the support price to value collateral. Because the market price thus
far has exceeded the support price, the government has not been called upon
to buy soybeans.
5. Brazil's earlier coffee diversification program and longstanding
export incentives also greatly aided soybean production. During the late
1960s, a portion of coffee export taxes went into a fund to finance coffee
growers' transition to other crops. In most of the important coffee areas,
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soybeans were the most attractive alternative. Although this program has
since been terminated, it was important in popularizing soybeans among
Brazil's most market-oriental farmers. The government also grants tax and
credit incentives to foster domestic bean crushing, thus increasing the value
added to soybean exports. Until 1972, Brazil crushed nearly all of its
soybeans, consumed the oil domestically, and exported mostly soybean
meal. Last year's soybean output outpaced both domestic crushing capacity
and vegetable oil requirements, however, and Brazil exported a million tons
of soybeans and about 50,000 tons of oil in addition to 1.3 million tons of
soybean meal.
6. High producer profits have, of course, been the major impetus
behind the continuing rapid growth of soybean output. Brazilian soybean
producers usually receive about $0.30 a bushel less than their US
counterparts because of a substantial transport cost disadvantage.2 Nonethe-
less, because production costs are considerably below US levels, soybean
pr auction would be profitable even if world prices were to fall to the
current support price-$5 per 60-kilogram bag, or about $2.25 per bushel. At
prevailing market prices, Brazilian soybean farmers are enjoying a bonanza.
7. Soybeans are highly profitable compared with other Brazilian annual
crops. Soil, climate, and well-adapted seed varieties make Brazil much more
efficient in producing soybeans than any other annual crop. Brazil's average
soybean output per acre in 1972 was only about 20% less than the US yield,
while corn yields averaged only one-third to one-fourth the US level (see the
table).
Comparative Yields
of Corn and Soybeans
1972
Bushels per Acre
Corn
Soybeans
United States
Illinois
108
35
Iowa
114
36
Indiana
98
28
Missouri
88
28
National average
94
28
Brazil
Parana'
30-35
27
Rio Grandedo Sul
25-30
20
National average
22-24
22
2. Shipping costs to Western Europe ere about $0.,5 per bushel higher from southern Brazilian
ports than from US ports. Port and handling cosh as well as inland freight rates also are higher
in Brazil.
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CONFIDENTIAL
Relative profit considerations would impel toe US producer to begin shifting
land out of soybeans and into corn when the soybean/corn price ratio was
somewhere around 2.3: 1, while the Brazilian farmer would still be shifting
into soybeans until the ratio fell below 1.5: I . The soybean/corn price ratio is
particularly relevant because these crops compete for acreage in both the
United States and Brazil. In the four Brazilian states where soybeans are an
important crop-Rio Grande do Sul, Parana, Sao Paulo, and Santa
Catarina-they occupy 14`Io of the cultivated land and corn takes up about
one-third. Cori, and soybeans are also the two most important crops in the
US midwesrern states.
Brazil's Soybean Potential
8. During the next couple of' years, as in the past, Brazil's potential for
expanding output depends largely on continued shifts from other crops and
from pasture in already developed farming regions. Area planted to soybeans
has quadrupled since 1968, partly because of double-cropping with wheat
but mostly because of outrigh. conversion to soybeans. Although this
meteoric rise in planted area probably will slow in the years ahead, shifts out
of' other crops and pasture will continue at a rapid rate because of soybeans'
pronounced comparative advantage. Use of natural pastures and other
underutilized land in Brazil's four major producing states alone could
probably double soybean acreage.
9. Corn, which now covers more than twice the land devoted to
soybeans, probably is the most vulnerable crop. Corn yields are not much
higher than those for soybeans, while corn prices are only cbout one-fourth
the current level fo ? soybeans. The Brazilian government may try to
moderate the shift out of curn by boosting support prices, but it is unlikely
to take such counterproductive steps as soybean export taxes to protect corn
output. Although additional e flee land is not likely to be converted to
soybeans, prevailing high coffee prices will not stimulate much reverse
substitution either. Coffee trees require six years before the first harvest, and
farmers are unlikely to forgo immediate soybean returns to gamble on coffee
prices years hence.
10. Although less important than acreage expansion, increased yields
will also play a role in raising Brazil's soybean output. The 10% growth
achieved in yields during 1973 is unlikely to continue over the long term,
but annual increases of 3Yo to `oIo appear attainable. Yields will be helped by
the growing use of certified seed as well as fertilizer and lime, which are now
only rarely applied. Perhaps most important, the government and the
soybean industry arc successfully developing new seed varieties especially
adapted to Brazilian growing conditions. Yields should also improve as
farmers now double-cropping with wheat shift to soybean monoculture, thus
lengthening the growing season.
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1 1. Over the longer run, Brazil's soybean production will benefit most
from the settlement of now lands in Mato Grosso and C-)is. Suitable
soybean land in these two states alone probably totals at least 10 times the
area now planted. Some new varieties specially adapted to the area
already have been developed (see Figure 5). These states are largely
unsettled, however, and accounted for only about 5% of Brazil's 1972
soybean harvest. The growth of soybean output in these areas will be
determined largely by the pace of investment in feeder roads and other
infrastructure-now one of the top government priorities. Brazilian firms
Brazil's Soybean Growing Areas
SANTIAGO? BUENOS? O
11 ) AIRES MONTEVIDEO
1 ,.
SUCRE
U rgal,:aptlal
OnlYI
BRASILIA
(.J
.Porto Alegre
Rio de Janeiro
/ti,Uq
1 Main soybean area
Developing soybean area
Potential soyb-an area
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with processing facilities in traditional soybean areas, as well as international
companies such as Cargill, can be expectc'.l to Pillow soybeans into the
hinterland.
Brazil's Soybean Plans
12. The harvest that began last month is expected to tohl some 4.7
million tons, or about 401 more than last year's record level. Area planted
increased by an estimated 30'/,, while average yields are expected to rise
from 21.8 bushels per acre to about 24. Because prices should still be
relatively high at the mid-year marketing peak, Brazil's export earnings could
considerably more than double this year, reaching about $725 million. High
producer profits will encourage even larger plantings this fall, and Brazil's
Minister of Agriculture currently is calling for a harvest of 7 million tons in
early 1974. Although this goal is not likely to be met, output of as much as
6 million tons is likely, with meal exports reaching 4 million tons in 1974.
13. The Brazilian government is expecting continued rapid increases in
output throughout the decade, to as much as 20 million tons by 1980. This
goal, which implies a 23% average annual growth during 1974-80, can be
reached only if producers are actively encouraged to shift to soybeans and
the government finances rapid clearing of new lands. Even if the government
continues to promote the crop and producer prices remain favorable, the
growth rate seems likely to decline gradually from about 25% next year to
about 10% in 1980. Under these circumstances, output would reach 14
million to 15 million tons by 1980, and meal exports would total about 9
million to 10 million tons. Even in the unlikely event that prices fell
substantially below historic norms or that Brazil restricted soybeans to
protect corn, output in 1980 still would probably increase to about 10
million to I 1 million tons, allowing 7.0 million to 7.5 million tons of meal
exports.
World Market Prospects and Their Implications
for the United States
14. Soybean prices will probably weaken substantially by the end of
the year, particularly if Peru's fish catch recovers somewhat by that time.
Barring adverse weather in producing countries, world soybean output is
expected to rise by a record 18% this year because of increased plantings in
the United States and Brazil. Even allowing for consumption increases in
both countries, total world export availability of soybean meal during the
marketing year 1973/74 appears likely to increase by more than 5 million
tons, or 32%. If Peru's fish catch returns to near-normal levels by late 1973
or early 1974, exportable meat supplies from both sources could rise some
36% above the level of the current marketing year. Under these
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circumstances, soybean supplies would exceed import demand by a sizable
margin, forcing the United States :o carry over surplus stocks for the first
time since 1970.
15. Even if' soybean prices decline, Brazil can be expected to continue
increasing plantings at a fairly rapid rate because of its pronounced
comparative advantage in soybean production. US plantings, however,
probably would level off, as they did when carryover stocks built up during
1967-69. Lower soybean prices could even cause some US farm^rs to shift to
corn, especially if the soybean/corn price ratio falls below the histo.1c
average of 2.3:1. Should additional large Soviet purchases or continued
Peruvian fishmeal shortages strengthen import demand more than expected
in 1974, the expected stock buildup would be postponed for a year or so
and prices would decline less than would otherwise be the case. In such an
event, however, Brazil's expansion rate would be even more rapid, and US
output would continue its rise. Once it develops, the problem of US
carryover stocks could be prolonged because Brazil's rising exports would
increase the difficulty of working them off.
16. Brazil's surging soybean exports will have little effect on US sales
during 1973, even though its market share will reach nearly 20%/,. Because of
improved harvests and high prices, US export proceeds from soybeans could
exceed $3 billion this year, compared with $2.1 billion in 1972. Brazil
almost certainly will cut into US export gains in 1974, however. Despite a
higher sales volume, US earnings from soybean products will flatten out if
prices weaken as expected.
17. Over the longer term, Brazilian competition could cut into the
growth in US export volume, as well as continuing its downward pressure on
prices. Even with a marked slowdown in its production growth rate, Brazil
should be able to capture at Fast 25% of the soybean market by 1980 (see
Figure 6). If it achieves its highly amibitioos Output goal of 20 million Ions,
Brazil could satisfy almost half of the total import demand now projected
for 1980. Thus, should prices return to the average of the late 1960s, US
earnings from soybean exports in 1980 would total $3 billion under the
best-case assumption that the United States retains 75% of the market and
$2 billion under the worst-case assumption that its market share slips to
one-half.
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f'iguro 6
World Demand for Fish and Soybean Meal
Million Motrie TonH
US Soybean Meal Exports
Goal
Brazil's Export
Minimum EHtifnatf,
75
I'rojectod
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