El Niño, as an influential climatic phenomenon, is currently observable globally, especially in South America. Based on the Oceanic Niño Index (ONI), which is above 2, it is expected that these conditions will continue at least until February. This pattern typically leads to less rainfall in eastern Australia, India, and northern Brazil, and better rainfall in southern Brazil, northern Argentina, and Uruguay.
Impacts on Brazilian Production
In Brazil, most states experience reduced yields in years affected by El Niño. The three northern states, which account for about 7% of national production, will see a yield decrease of between 15% to 17%. In the 2015/16 season, smaller states faced an average yield reduction of between 40% to 60%. The state of Mato Grosso, which produces 29% of Brazil's soybeans, typically experiences a 4% to 5% yield reduction in El Niño years, which reached 14% in 2015. Rainfall in this state will be the key factor in supplying soybeans for the upcoming year.
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Export Challenges and Transportation Costs
Decreased water levels in Gatun Lake and restrictions in the Panama Canal have increased export costs for North American exporters. This organization has reduced the daily passage of ships from 36 to 32, with grain vessels being the first groups to face restrictions. On about one-third of days, no grain ships pass through this canal. A typical journey from the Gulf of America to China takes about 35 days, but with Panama's restrictions and the closure of Suez, the alternative route increases to 53 days. Meanwhile, South American exporters are not affected by any of these restrictions, and their journey takes about 39 to 40 days. This difference can lead to a cost increase of up to 50% for North American exports.
Additionally, trade commitments between the U.S. and China have raised questions about the U.S. trade balance. China recently purchased about 10 million tons of soybeans from the U.S. while having a commitment to buy 25 million tons. Although the market expects this commitment to be fulfilled, U.S. soybeans are also competing with non-Chinese buyers.
Ultimately, Brazil's soybean exports are expected to remain similar to this year, provided that production is normal. Increased transportation costs must also be considered in evaluating export costs, as shipping costs have risen significantly.
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