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South America – led notably by Brazil and Argentina – has quietly emerged as a major producer of the basic crops and products that form the foundation of our global food system. Their productive capacity extends far beyond the sugar, citrus, cocoa, and other tropical and sub-tropical crops we often associate with any country south of our border. Brazil and Argentina also grow corn, soybeans, wheat, and other cornerstone commodities of the global food system. Four nations – Brazil, Argentina and Paraguay in South America, and the United States – together dominate global soybean trade.

South American producers are feeding expanding populations at home and abroad that want more and better food. And in the process, they have become major global competitors, especially as China begins to fill their soybean and corn deficit both from a growing economy and a rebound of hogs from the African Swine Flu.

Why does it matter? Because it helps meet the growing demand for food, primarily protein, from consumers everywhere. It drives the global markets that determine and maintain the delicate balance of commodity prices. It affects the income and well-being of the U.S. farm community. And ultimately, it influences the prices we all pay for the food on our tables.

Welcome to a Changing World

The headline went almost unnoticed in the major news media. But it attracted a lot of attention in the farming community when it appeared early in 2020 on various news wires…

Brazil to surpass the US as the world’s largest soy producer.

The U.S. Department of Agriculture noted that the 2019-20 Brazilian soybean crop would come in at an estimated 123.5 million metric tons (mmt), far above the weather-troubled U.S. crop of less than 100 mmt. To add to the concern in farm country, USDA also noted that an estimated 75 mmt of the Brazilian crop would find its way into export markets.

Since those reports, the picture hasn’t changed – except to become even more complicated. USDA projects that Brazilian farmers will plant, harvest, and export even larger amounts of soybeans in the 2020-21 marketing year that has just begun. And to make matters more complicated, Trade Market News increasingly speaks of Brazil as not only the world’s largest producer of soybeans, but the world’s largest exporter, as well.

Behind all the numbers, one message was clear: U.S. farmers are facing some tough competition to serve the growing demand for the soybeans and coarse grains needed to feed expanding animal herds around the world — especially the already huge (and still growing) market offered by China.

The Brazilian agricultural sector has grown robustly over the past decade and a half or so – and the Argentinian agricultural system remains a strong competitor in global agricultural markets. Together, these two nations make up an agricultural powerhouse, with rising clout in the world food picture.

A serious analysis of each country’s farming and food production systems would fill books. But just consider a snapshot of each.

Complicating the Picture

What makes South American producers so competitive?

A 2016 study by the U.S Department of Agriculture found that higher land and capital costs in the United States helped give both Brazil and Argentina significant advantages in overall farm-level production costs per acre for both corn and soybeans. Higher U.S. yields for corn helped offset the disadvantage somewhat, but these South American producers were found to have a per-acre price advantage that averaged 11 to 28 percent below U.S. costs.

U.S. corn farmers continue to have the overall price advantage, thanks to their superior per-acre productive capacity. But Argentine corn producers trail the United States by only 3 percent above U.S. costs (25 percent for Brazilian corn growers). Brazilian soybean farmers had a per-bushel cost advantage of 8.5 percent. Those kinds of advantages translate into very attractive prices for foreign buyers – and help explain the emergence of both countries as major factors in global corn and bean markets.

Not everything is rosy for the Brazilian and Argentine farm sectors, however. Nothing is guaranteed when it comes to farming and food, and experts also cite several continuing challenges to growth. Some offer rays of hope for better market opportunities for U.S. producers and exporters.

• Global supply – and price — issues.

Worldwide stocks (basically soybeans in storage) of soybeans dropped again at the end of 2020, to a seven-year low of 140 million bushels. At the beginning of 2020, that figure was 575 million bushels.

And as economics dictate when supplies decrease and demand increases, prices have enjoyed a resurgence over recent months. Soybean prices that averaged about $9.50 in 2020 now sell for more than $13.50 – levels not seen in almost a decade.

In response, demand for corn as an animal feed also has increased worldwide, allowing U.S producers more opportunity to exploit their edge as the world’s largest and most efficient corn producer.

• Brazilian supply issues. Brazil faces delivery problems for their soybean export commitments. Brazil is running low in stocks for their domestic customers. As a result, they have temporarily eliminated their 14% tariff for imported soybeans. They could import up to 1 million tons this year.
• Investment. Not only have Brazilian farmers been willing to re-invest their new profitability in production expansion, but government assistance and foreign investment has helped fuel expansion of the country’s agricultural infrastructure. For example, a modern new road from key production areas around the Amazonian city of Manaus to vital export points has helped the flow of Brazilian crops from field to foreign customer. Soybean producers also have shown a willingness to invest in new, more drought-resistant seeds, and the inputs needed for optimal yields. The commitment to investment will be a key to continuing market competitiveness, as South American producers seek to match – or outperform — their northern counterparts in production efficiency.
• Currency and economic challenges. The value of the Brazilian real has dropped by almost 30 percent over the past year, lowering the price of Brazilian exports and the cost of production inputs. Much of the continent continues to grapple with how to rebound from a lingering global economic downturn and the very real damage done by a global pandemic. Many have seen a sharp drop in economic vitality, but seem on the rebound now. Those efforts will be critical to attracting the investment that drives growth and modernization.
• Political instability. Governments continue to struggle with the best means of dealing with political unrest triggered by allegations of government corruption, human rights abuses, economic and social injustice, and other public unrest that triggers fiery campaigns and heated public debate.
• Environmental pressures, especially within Brazil. Deforestation in key parts of Brazil has accelerated in recent years, outraging the environmental community in an age of climate change. Some politicians and economists counter that more agriculture, logging, and mining are key steps in regenerating the economic health on which progress depends. The debate promises to grow only more intense.
• American market resurgence. Efforts to resolve lingering trade disputes between the United States and China will be closely watched. USDA’s year-end projections for 2021 point to an expansion in U.S. soybean exports, as trade relations with China settle down and export levels rebound from the depressed levels of the past two years and return to the more traditional levels seen before the contentious trade dispute between the two countries. Soybean exports so far this marketing year are robust, supporting USDA projects that soybean sales to China will grow from the $17-18 billion levels of the past two years to more like $26 billion – above even the high levels reached in 2017.

Flying Down to Rio – and Beyond

Agriculture represents one of the mainstays of the Brazilian economy, despite the global economic downturn of the late 2000s and the more recent COVID pandemic.

Rising population and strong economic growth have created a robust domestic market for a wide and growing roster of food. But the real source of vitality in Brazilian agriculture rests in its enormous success in moving aggressively into global markets.

For decades, the country has developed market-oriented policies and improved farming and food production practices that have made it an international haven for investment.

The government actively supported the agricultural sector with a broad and extensive array of initiatives and policy changes – largely aimed at allowing Brazilian producers to compete for growing world markets food.

Programs helped producers diversify crops, improved their access to the capital needed to mechanize and purchase improved inputs, expanded agricultural research. provided targeted tax reductions and subsidies for select exports – and more.

Where are these exports going? Who are its most important trade partners?

Asian markets represent almost half the market for all Brazilian farm exports. And China is at the top of the list – as both Brazil’s largest export market and its largest supplier of total imports.

Reports from the Brazilian government in the first half of 2020 point to sharp increases in year-over-year sales. In January alone, China bought a record $3.8 billion in Brazilian farm exports, including $750 million in soybeans in that single month, according to their Minister of Foreign Trade. For perspective, that is more than the Pentagon is asking for its defense budget for the entire year.

In plain English, the Brazilian farm economy is growing despite all sorts of challenges, and its exports are going gangbusters, thanks in large part to strong demand from China and the rest of Asia. Brazil – and fellow South American country Argentina – are successfully capturing more and more of the markets important to American farmers and the U.S. agricultural system.

Don’t Cry for Argentina

Argentina shares many of the same characteristics of diverse climate and soil that make Brazilian agriculture so successful. The country produces a wide range of crops and animals, with a robust and growing wine industry.

The rich grasslands of the Pampas region once made Argentina a powerhouse in the production of cereals and cattle. But as the country increasingly urbanizes and other nations improve their competitiveness, Argentina has not seen the same level of dramatic growth and expansion as its South American neighbor. Great weather and strong global demand for soybeans, feed grains, and animal protein helped Argentina maintain a strong presence in the global market picture. However, export taxes and other government-directed efforts to manage markets risk further damage to Argentinian competitiveness.

Oilseeds represent the fastest-growing segment of the country’s exports, up 130 percent from 2018 to 2019.

Meat exports rose by half in the same period. Brazil remains Argentina’s most important trading partner overall.

China is Argentina’s second-largest export market, with Viet Nam, India, Malaysia, and Indonesia also buying large amounts of Argentine farm products.

The United States imports around $5 billion each year – mostly metals and minerals, and about $300 million for fruits and vegetables, and another $300 million in wine.

The Argentine government spurred internal controversy in early 2021 by announcing the two-month suspension of licenses for corn exports. The move was intended to conserve corn supplies for local animal feeding, but producers strongly opposed the measure, leading to the imposition of export quotas for corn. Concurrently, Argentina lowered export taxes on a long list of specialty crops, helping improve the price competitiveness of those producers.