March 12, 2024

Brazil’s soybean export ramp-up gets underway

Dry bulk carriers are beginning to gather outside Brazilian ports as the country’s soybean export season gets underway. Kpler Insight expects shipments to be lower y/y in 2024 however, a tighter supply of ballasts, and support from resurgent Argentine corn exports, should keep the supply-demand balance tight and support Atlantic dry bulk carrier earnings.

Brazil’s seaborne soybean exports typically accelerate in February as the new harvest begins to arrive at ports, building to a peak in March/April, and fading towards the end of the second quarter when corn cargoes come to the fore. Brazil entered this shipping season with higher stocks than last year allowing for a strong start to exports, as was also the case in 2019 and 2021, which Kpler Insight expects to support y/y growth in February cargoes. The ramp-up was also aided by harvesting in Matto Grosso which is ahead of the same point last year.

Record soybean plantings but a slightly lower yield than in 2023 amid a lack of rains due to El Nino conditions are expected to mean overall Brazilian harvest and exports are down slightly y/y, but still the second strongest on record. Soybean prices continue to show weakness as a result of a well-supplied balance sheet. Shipments are forecast to peak at more than 13 Mtpm in the second quarter, below the highs of 2023 amid competition for capacity with off-season corn shipments.

El Nino weather conditions typically cause dry weather in the soybean crop in Central Brazil, including large producer Mato Grosso. Areas in Southern Brazil may receive more rainfall (mainly Parana and Rio Grande do Sul), affecting port loading operations and capacity.

Brazilian Soybean exports, especially to China, support Atlantic Panamax earnings

Brazilian soybean exports are the largest driver of sub-Capesize demand in the Atlantic, employing close to 1,400 vessels and accounting for a record 1,040 Bt-miles in 2023, a 27% increase in ton-miles on the year before. Most of these were Panamaxes and Kamsarmaxes. With the majority of Brazilian soybeans shipped to meet Chinese demand, the long-haul nature of the trade boosts ton-mile demand compared to the country’s corn exports which have a more diverse set of consumers. The annual decline forecast for 2024 soybean production by CONAB and the USDA paired with Kpler Insight’s lower soybean exports will mean a slight y/y drop in tonne miles but still the second strongest year on record.

The first quarter ramp-up in soybean harvest is typically accompanied by a surge in congestion at the country’s ports as infrastructure struggles to cope with the seasonal cargo surge. Despite significant investment, notably at northern ports, production growth means roads and export terminals still come under pressure. The number of bulkers waiting to load oilseeds at Brazilian ports has climbed from a low of fewer than 20 vessels in January to near 50 at time of writing, with the steepest increases in congestion at Barcarena and Santos. Grain port congestion typically peaks towards the end of the second quarter, before rising again later in the year as corn exports ramp up in the third quarter. Brazil’s second corn crop (safrinha) is harvested in July and adds to the export volumes.

The combination of lower forecast soybean and corn exports, plus further investment in port infrastructure, means congestion at Brazilian grain ports should not reach the highs of 2023 this year.

Dry bulk carriers 70,000-99,999 dwt waiting to load soybeans at Brazilian ports (Count) | Source: Kpler

Vessels respond to higher demand from South America

However, while port congestion may not be as severe, reduced availability of ballasters in the basin will support earnings in the Atlantic as a whole.  Atlantic supply was boosted at the start of 2023 by ships looking for cargo after discharging coal on the Continent. Trade surged in winter 2022/2023 amid energy supply concerns following the cut-off of Russian coal and gas. With European coal imports sharply lower y/y this winter, the flow of vessels into the region was reduced. There were 331 dry bulk carriers of 70,000-99,999 dwt in ballast in the Atlantic and US Gulf the week beginning 12 February. This compares with a year-ago level of 380 and 366 in the same week in 2022.

The strong start to Brazilian soybean exports, and a resurgence in exports of corn and soymeal from Argentina after drought-curtailed shipments in 2023, have pulled vessels to the south of the basin and further tightened the ballasting vessel supply in the North Atlantic. As a consequence, despite the softness in the trans-Atlantic coal trade, the BPI (82.5k dwt) Atlantic round-voyage rate has recorded an average premium of more than $3,500/day to the Pacific equivalent in the year-to-date. The premium over the same period in 2023 was $595/day, and in 2022 it was discounted.

Panamax Atlantic earnings start 2024 at a premium to the Pacific ($/day) | Source: Baltic Exchange/Kpler Insight

Navigating the Atlantic Premium: Insights on Ballast Flows, Shipping Challenges, and Market Projections

Kpler Insight expects this Atlantic premium to come under pressure from the flow of ballasts into the basin, primarily via the Cape of Good Hope. We continue to see some dry bulk carriers ballasting via the Red Sea route however, ongoing attacks on shipping and the increasing difficulty in securing insurance coverage for the region are likely to slow traffic. Nevertheless, projected lower y/y Brazilian soybean exports are still expected to be the second-highest annual exports on record. Along with demand from other cargoes, and the tighter supply situation in the North Atlantic, this should support Atlantic Panamax/Kamsarmax earnings through the first half of this year at a higher premium to Pacific equivalents than in 2022 or 2023.

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