Brazil: food supplier to the world now; biofuels supplier to the world next

Banner Image
Over the past 30 years Brazil’s emergence as a global powerhouse in agricultural commodities has been astonishing. Green coffee production has more than doubled since 1990 and sugar cane production has grown about fivefold during the same time. Brazil has gone from barely an afterthought in global soybean production, producing less than 16 million tons, to the world’s largest producer, with nearly 155 million metric tons. This has come from ever-increasing trend yields and a substantial expansion of area under production.

The story for corn production is similar. In the 1990/91 crop year Brazilian corn production amounted to 24 million metric tons; today, Brazil will produce more than 130 million metric tons, nearly doubling corn area during this period. Brazil will overtake the US as the world’s largest exporter of corn this year. However, this year is not a result of a one-off supply shock in the US. Large Brazilian production is undercutting US corn in world markets. Brazil overtook the US as the world export leader in soybean ten years ago and has never looked back; we expect the same to happen with corn.

Brazil’s competitiveness is mostly related to its vast land availability and low cost of production. The large-scale farming and fast adoption of new technologies allowed it to increase planted area and yields simultaneously. Grain transportation costs in Brazil have been historically much higher than in the United States or Argentina but it has been improving infrastructure in transportation and ports which helped to narrow that difference.

All of the above is focused on the supply side. However, Brazil’s rise to prominence in the global oilseed and grain markets also came from filling expanding markets, particularly China’s growing demand. During the last 20 years, soybean exports from Brazil were largely supported by China imports. Strong economic growth, favorable demographics, and fast urbanization helped boost China’s growth and imports of raw commodities. In the animal-feeding sector, the compound annual growth rate of Chinese soybean imports was 7.9% in those 20 years. From 1990-2020, China’s consumption of animal protein grew nearly fivefold. It accounts for roughly half the world’s hogs and nearly 70% of aquaculture production.

However, while China’s economy will continue to grow, the rate is likely to be about half of the 10% growth in 1990-2013. Moreover, China’s population shrunk for the first time in 60 years this year, due to declining birth rates. It is hard to imagine these factors will not matter when it comes to food consumption and animal feedstuffs demand.

Most of the same supply-side factors that allowed Brazil to gain market share in ag commodity exports during the last three decades are likely to remain; but slower Chinese import growth is expected to result in substantial changes in the global ag trade.
While China’s demand growth for raw ag commodities slows, domestic processing will play a significant role during the coming years in Brazil to accommodate the growing supply. The Investment in domestic processing is expected to ramp up given the lower cost of soybeans and corn supplies, and profitable margins.

Biofuel demand is likely to continue to expand in Brazil and globally. In fact, the expansion of the renewable diesel industry in the US is exceeding the availability of feedstocks for the first time, and the US is turning a net short soybean oil importer.
Brazil is well positioned to address the tight supply and global vegetable oil trade re-allocations to gain market share in the food and fuel segments. This will facilitate increased exports of soy oil and biofuels. At the same time, the meal produced will be a tailwind for the country’s animal feeding sector and is likely to increase exports of meal. This trend will continue with Brazil eventually taking the lead in global soybean products exports. Concurrently, the door is open to pursue leadership in animal protein and biofuels exports.

In conclusion the short term economics of soybean and corn production will be challenged by the slowdown in Chinese demand. However, Brazil has significant potential to continue to expand its crop production. Brazil still has more than 100 million acres of pastureland available to expand agricultural production. Production increases provide a huge competitive advantage in any environment, especially if margins are squeezed - good things happen to the low-cost producer.
Brazil is currently the food supplier to the world, and if future demand drivers shift from China to biofuels, Brazil is well positioned to morph into the supplier to the world of biofuels. Given soy crushing for biofuels has a symbiotic relationship with animal feeding, this should increase Brazil’s competitiveness in global animal proteins.

Get access to the full report here.

To learn more about our products, please click here: Food and Agricultural Commodities Economics

Tags

  • Agriculture

  • Gas & Power

  • LNG

  • Metals & Mining

  • Chemicals

  • Shipping

  • Refined Products

Related content

Thought Leadership

Interactive: Platts SAF-Jet Fuel blend price

Sustainable Aviation Fuel is being blended with conventional aviation fuel in increasing percentages. Mandated blend volumes and voluntary targets across the globe are aiming to tackle the challenge of decarbonizing aviation. The S&P Global SAF-Jet fuel blend slider uses the month average Platts CIF Northwest Europe Jet cargo price benchmark and the CIF ARA SAF price assessment to show a representation of the blended price of aviation fuel.

Thought Leadership

Interactive: The Platts Benchmark Heatmap

The price wall visualizes 258 of the most important price benchmarks assessed by Platts across various commodities from crude through to chemicals, LNG and carbon. The wall shows the price performance of these benchmarks over 2023 based on their indexed value from the first day of trading. Click on the commodity button to isolate different groups of resources to see which performed best in 2023, a year that saw dramatic changes in trade flows and demand because of sanctions and price caps on Russian commodities and a recovering post-COVID global economy. Isolate individual benchmarks by clicking on the tile to reveal a unique QR code to navigate to specific Platts methodology pages and average price data for 2022 and 2023. Click to start exploring

Thought Leadership

Fueling the Future: Biofuels driving progress on net zero

The role of biofuels in energy transition is growing, as they can help decarbonize hard-to-abate transport sectors, but more supply is needed to keep the world on track with net-zero goals. S&P Global Commodity Insights explores how regional policies are driving adoption and evolving technology is widening the feedstock pool, as well as supply and demand outlooks across transport sectors. READ MORE

Thought Leadership

INTERVIEW: Upstream investments crucial for 'just transition' to cleaner fuels: Invenire Energy

India must keep investing in the upstream sector to ensure higher oil and gas production to avoid possible supply problems or volatile energy prices, as it embraces technologies that are more environment friendly, Mannish Mahesshwari, CEO of Invenire Energy, told S&P Global Commodity Insights. "Flipping the lens to energy security, sustained under investment in upstream without substitutional capacity and substantial scale in clean and new energy could have far reaching consequences in the journey of just transition," Mahesshwari said on the sidelines of the India Energy Week in Goa. Most of assets of private equity backed Invenire are discovered fields in India that the company has acquired through secondary market purchases from other firms as well as through primary acquisitions directly from the government. The company also has assets in Indonesia and East Africa. The private upstream firm is looking to accelerate production of oil and gas from the discovered fields in its portfolio but has no plans to venture into exploration in the foreseeable future. "We are putting our money where our mind is. As a company, our ability to understand the rocks and the molecules is relatively better than the electrons. We are investing in today's energy system, which is mainly oil and helping in phasing out coal with the help of low-carbon gas," Mahesshwari said. He said that the transition to a world of net zero is more certain today than envisaged in 2015, the year of the Paris Agreement. However, it is the uncertainty around the energy transition pace that adds complexity and risk for upstream projects. The upstream industry has been avoiding spending on projects that would either lock in heavy emissions for years to come or quickly turn into stranded assets. Right focus Invenire currently holds stakes in nine blocks in India. Out of these, four are discovered small fields (DSF) blocks -- one in Assam and three in Mumbai offshore -- comprising a total of about 100 million barrels equivalent of oil and gas. Invenire holds a 100% stake in the four DSF acreages. The company has a small production portfolio of about 12,000 b/d but has plans to boost that volume to 35,000 b/d by 2025. According to S&P Global, Invenire Energy's upstream plans show ambition and promise, considering the wider competitive landscape in India. The company's experience of operating in a tough post-2014 upstream period that saw oil prices slump will certainly influence its post-2023 growth ambitions. For assets outside India, the company might have plans to become a non-operator joint venture partner to take stakes in small-to-medium sized producing assets. The company's focus has been on monetizing discovered resources, having both operator and non-operator portfolios, S&P Global said. Besides India, Invenire has producing fields with 45.55% participating interest in a material acreage located in South Sumatra Basin in Indonesia. "The upstream industry's main focus now is to deliver the supply required to meet demand. Most of the industry's oil and gas investment for the rest of this decade will target advantaged resources -- those with the lowest cost, least risk, and possibly lowest Scope 1 emissions. Beyond this decade, to meet demand, the industry will depend increasingly on late-life reserves growth from legacy supply sources." Mahesshwari said. Similar views Mahesshwari's views echoed comments made by state-run upstream producers ONGC Ltd. and Oil India Ltd. at the IEW conference. ONGC Ltd., which contributes about 74% of India's crude oil and around 63% of its natural gas production, has been actively looking to widen its upstream portfolio as it believes that oil and gas will be a major component of the country's energy mix for the next three decades, while pursuing new crude-to-chemicals projects to prepare for the changing energy landscape, its Chairperson Arun Kumar Singh told the conference. Oil India Ltd. is aiming to double its exploration acreage in the coming years and seeking partnerships to realize the hydrocarbon potential of offshore regions in Indian sedimentary basins, its Chairman and Managing Director Ranjit Rath said. Mahesshwari said that there is a need to take a balanced view of energy transition, adding that any shortfall in upstream investments can add to supply issues and volatile energy prices, as seen in recent years. While it's important to keep looking for opportunities to invest in low-carbon businesses, continuing to responsibly invest in the core upstream business will remain the priority for the company in the foreseeable future. "The potential in carbon capture utilization and storage is enormous, and the oil and gas sector has unique skills that make it ideally placed to lead in reducing CO2 and methane emissions and decarbonize hard-to-abate sectors through carbon upcycling," Mahesshwari said.