Brazil is the world's second largest producer of soybeans after the US, and its production and exports account for close to 30% of the global market. Domestic consumption of soy products has been on a strong growth trend over the past decade sparked by rising per capita meat consumption and biodiesel production. Total meat consumption per capita (poultry, red meat and swine) has increased 23% over the past decade, reaching 98 kg per capita by 2010.
This level, however, remains below that typical of advanced economies, suggesting further scope for healthy increases as the country undergoes a period of economic expansion. Meanwhile, biodiesel production has also expanded rapidly over the past decade, increasing from 13kb/d in 2005 to 41kb/d by 2010, with three quarters of biodiesel in 2010 coming from soybean oil.
The launch of the Biodiesel Production and Use Program (PNPB) at the end of 2004 helped spearhead the growth. With Brazil a net diesel importer, environmental concerns on the rise, and the expansion of the biodiesel industry helping fulfill important social imperatives as well, biodiesel production is well positioned to keep expanding robustly over the next decade.
Overall, we expect soybean meal and Soybean Oil demand to increase at rates similar to those recorded during the past decade throughout 2020.
By contrast, we think soybean production will struggle to match the extraordinary rate of growth of the past twenty years. During the 1990s, fast expansion in soybean output (circa 9% p.a.) was primarily driven by significant technical improvements and the associated steep rise in yields. Between 1990 and 2000 productivity jumped by almost 40%, while expansion of harvested area was a more modest 19%.
These trends changed abruptly during the past decade, however, when yields flattened sharply and the ongoing production boom became primarily a function of a jump in planted acreage. Between 2000 and 2009 soybean harvested land rose by an extraordinary 60%, climbing from 13.6mn Ha in 2000 to 21.7mn Ha in 2009.
Importantly, the expansion was not uniformly spread across regions. While in 1997 the South region was responsible for almost 50% of Brazil's total area of soybeans, by 2005 the Center- West region of Mato Grosso had surpassed the South as a key soy producing area. Increased land use in the boundaries of the Amazon has heightened public focus over the sustainability of the expansion and its environmental implications.
In our view, these trends suggest the potential for a slower pace of expansion in Brazil's soy output over the medium term. The cultivated soy area is unlikely to keep expanding at recent rates, due to both environmental reasons and rising production costs.
This implies that in the absence of a quick resumption in productivity gains, soy production will follow a gentler path over the next decade. Long-term estimates vary sharply. A recent paper by Masuda and Goldsmith from the Department of Agriculture from the University of Illinois, pegs the rate of growth in Brazil's soy production over the next decade at a low 2.7% (compared with the 6.6% recorded between 2000 and 2010). Using our demand assumptions presented earlier, such a low-growth scenario would basically cap soybean exports at current levels.
Other long-term estimates are more optimistic, with the USDA for example projecting a continued gradual increase in soybean exports through 2020. Yet, even the USDA projections envision a significant slowdown in the pace of export growth, from a cumulative 108% during the past decade to 53% over the next. Overall the data above suggest the risk for an increasing share of soybean output to be crushed for domestic use and thus for a lower proportion of the crop to be available for exports.
