Brazil soybeans lose protein, China sales at risk

CJ CheilJedang

19/07/2019 15:45

By Ana Mano
    SAO PAULO, July 19 (Reuters) - The protein content in
Brazilian soybeans fell for the first time in four harvests in
2018, according to preliminary government data, a development
that has already cost Brazilian companies business with top
buyer China.
    Declining protein levels in Brazil, the world's top soybean
supplier, spells trouble for exporters who are faced with the
prospect of cancellations, selling beans at a discount, or
stricter contracts requiring quality assurances with buyers who
want to guarantee a nutrient-rich purchase.
    The protein content in Brazil's 2018 soy crop harvested
around January of that year slipped to an average of 36.83% from
37.14% in the previous crop according to preliminary findings,
Marcelo de Oliveira, researcher at government research agency
Embrapa, told Reuters. The data will be adjusted by September,
when the final Embrapa soy quality report is due, he said.
    Cesar Borges, board executive at food processor Caramuru
Alimentos SA, said in an interview the company had to turn down
a potential sale to China this week because it could not
guarantee the minimum protein levels required by the Chinese
importer.
    China, which imports soybeans to use in livestock feed, has
grown increasingly more reliant on Brazil for soybeans since
last year, when it applied retaliatory tariffs on U.S. soybeans
in response to U.S. duties on Chinese goods.
    Beijing's overall soy import needs are decreasing as an
outbreak of African Swine Fever kills millions of pigs, however,
meaning it can be more selective about its purchases. 
    China is also importing soybeans from No. 3 exporter
Argentina, though in smaller amounts. Camilo Motter, a broker in
Paraná state, confirmed falling protein content and Argentine
competition can affect Brazilian soy premiums, the amount paid
at local ports. 
    Antonio Pípolo, an official at Embrapa, said Brazilian
farmers care more about quantity than protein or oil content,
which does not alter the price they get when they sell their
beans to processors or exporters. Soybean yields rise inversely
to protein levels, according to the agency. 
    The U.S. soy industry has also seen protein levels fall in
recent years as farmers chased higher yields. That trend helped
Brazil, where warmer weather was thought to offset the impact of
higher crop yields on protein levels, become a larger supplier
of soybeans to China than the United States over the past
decade, even before the trade war.
    China currently buys around 80% of Brazil's soybean exports.
    If Embrapa's figures are confirmed, Brazilian soybeans still
had higher protein content than the average 34.2% in U.S.
soybeans in 2018, according to the U.S. soybean quality report
compiled by industry groups. But U.S. protein levels improved
slightly from 2017 while Brazilian protein levels appear to be
going the opposite direction.
    "All crushers are suffering," Alessandro Reis, chief
operating officer at Brazilian soy processor CJ Selecta, told
Reuters by telephone. Declining protein content has increased
the need to separate soy hulls from the rest of the extractive
material, lowering the weight of the grain and hence the volumes
of meal produced, Reis said. 
    Separating the fiber-rich soy hull helps boost protein
content in the soymeal to between 46% and 48%, which is a
contractual requirement, he explained. While the soy hull
by-product can also be exported, it has a much lower market
value than the meal, Reis said. 
    "I don't believe we will stop delivering soy to China. But
if they insist on protein levels around 35-36%, it will be a
problem for us," Reis said. 
    Chinese complaints over protein in Brazil have led to
internal discussions at Brazil's grain exporter's association
Anec aimed at revising the terms of the standard soybean export
contract, which sets quality thresholds including oil content
and maximum permitted grain humidity, said Lucas de Brito, an
Anec executive.
    Brito said there is no set value for protein content in the
standard contract, but traders have discretion to set quality
standards in private negotiations with buyers.
   

 (Reporting by Ana Mano; Additional reporting by Julie
Ingwersen; Editing by Caroline Stauffer and Susan Thomas)
 ((ana.mano@thomsonreuters.com; Tel: +55-11-5644-7704; Mob:
+55-119-4470-4529; Reuters Messaging:
ana.mano.thomsonreuters.com@reuters.net))