Key Factors Behind Brazil Soybean Price Spread Advantage to U.S.
Cost of production and export competitiveness | Currency & exchange‐rate effects
The fact that Brazilian soybeans for December–January shipment are trading at least $0.50 per bushel below U.S. soybeans (and diverging even more on later‐shipment crop) reflects a combination of structural advantages and market dynamics, rather than simply Brazil “dumping” below cost. Below is a breakdown of the key factors and a conclusion on whether Brazil is selling below cost or benefitting from competitive advantages.
Key Factors Driving the Price Spread
1. Brazil’s cost of production and export competitiveness
USDA’s Economic Research Service (ERS) study (link) comparing Brazil vs U.S. shows:
- In marketing year 2021/22, average total production cost per bushel in Brazil was about US$8.67/bu, while for the U.S. it was about US$9.85/bu.
- Brazilian costs are lower largely because land and capital costs are lower than in the U.S., even though yields are lower.
- Brazil has improved its infrastructure (e.g., paving the BR-163 highway) and thus reduced inland transport costs.
Thus, Brazil has a structural cost‐advantage which gives it more flexibility to price into the export market.
2. Currency & exchange‐rate effects. Brazil benefits from a weaker Brazilian real (BRL) relative to the U.S. dollar (USD), which improves its export competitiveness in USD terms. The USDA study specifically notes that currency devaluation boosts Brazil’s competitiveness because costs in local currency may increase, but the USD value of domestic output increases more.
When the USD is strong vs the BRL (or when USD denominated world prices rise), Brazilian exports become more attractive relative to U.S. origin.
3. Timing / seasonality and planting vs harvest dynamics
- The U.S. crop is planted in spring and harvested in fall, whereas Brazil’s main soybean harvest (for much of the Cerrado/Mato Grosso region) is earlier (often January–March) but when one looks at December–January shipment contracts, Brazil may be offering current crop (or early crop) while U.S. shipments may cover new crop or carry‐forward.
- Because Brazil is planting new‐crop beans for the next season, there may be an incentive to lock in export business now and roll risk, which can lead to somewhat aggressive pricing.
- Also, buyers might prefer Brazilian origin for certain ports/timing, giving Brazil premiums (or in this case, relative discounts from U.S.) depending on demand.
4. Competitive pressure from Brazil’s rising export share
Brazil’s export share has grown significantly: Brazil’s soy export share (and production) has risen, especially since the U.S./China trade war during President Trump’s first term.
This rising supply means Brazil needs to compete actively on price (especially for December–January shipment) to maintain or grow market share.
5. U.S. futures/cash price run-up and global basis effects
- The price of the Chicago Board of Trade (CBOT) soybean futures has run up, raising U.S. origin premiums and cash prices.
- Brazilian export prices tend to “move in sync” with CBOT futures but often with a basis shift (e.g., freight, origin, port, currency).
- If the U.S. basis (premium for Gulf origin, shipping costs, inland freight) increases, that pushes U.S. delivered price higher, which widens the gap to Brazilian origin.
Is Brazil Selling Below Cost?
- No — the USDA study indicates that Brazilian production costs per bushel are already lower than U.S. production costs: ~$8.67 vs ~$9.85.
- There are reports though that in some regional cases Brazilian farmers observe cash prices “below cost” (for their region, maybe depending on yields/inputs) — one commentary noted “soybean prices have dropped below production cost … cash prices trading at about US$8.30” in Brazil.
- That suggests some Brazilian farmers may face local regional cost pressures (poor yields, high input costs, freight constraints) but on average Brazil has a cost advantage.
Upshot: Brazil is not broadly selling well below its structural cost of production — rather it is selling at a competitive margin and making use of its cost base, logistics advantage, and currency/competitive dynamics to offer lower delivered price than U.S. origin.
Why the Spread is Especially Large for Later Shipment
There are a few additional reasons for this time-structure effect:
- Carrying/holding costs in the U.S. may be higher (storage, interest cost, quality risk), which can push U.S. new‐crop futures higher relative to current crop Brazil.
- Brazil’s early crop timing: Brazil may already have crop in the bin (or soon) and be ready to ship with less carry cost — so they can “front load” the market at a lower price for December–January shipment.
- Freight/port congestion risk: Later shipments from Brazil may incur more risk (weather, port delays, etc), pushing discount or risk premium; and U.S. origin for later may be less competitive.
- Demand dynamics: Buyers may prefer earliest availability, thus Brazil for December–January may be locked in with better price; for later shipments U.S. may face competitive loss so brokers/shippers may add premium.
- Currency & input inflation: Brazil’s input inflation (fertilizer, seed) may be higher later in the season; thus earlier shipments lock in lower cost base. Meanwhile U.S. cost pressures (interest, input costs) may push futures higher for later.
Bringing It All Together
In summary:
- The ~US$0.50/bu (or more) discount of Brazilian soybeans vs U.S. origin for December–January likely reflects Brazil leveraging its cost base, currency and export competitiveness, and timing advantage, rather than a deliberate below‐cost “dumping” strategy.
- The strong U.S. cash/futures price (for U.S. soybeans) amplifies that spread: with U.S. prices high, Brazil appears relatively cheaper.
- A strong U.S. dollar helps Brazil in two ways: (1) it strengthens the USD value of Brazilian origin exports, and (2) it tends to weaken the real which improves Brazil’s cost competitiveness in USD terms.
- Brazil “sells into” the global export market aggressively because it is rising as a dominant exporter, so has both the incentive and capacity to offer lower delivered basis to secure business — especially when U.S. origin becomes relatively more expensive.
- Because Brazil’s structural cost is already lower, they have room to price down without necessarily losing margin (although local farmer margins may still be tight in some cases).
- The larger spread for later shipments may reflect U.S. origin cost pressures, higher carry costs, shipping/logistics uncertainties, and Brazil’s ability to lock in earlier harvest.
Some recent historical data (last 2–3 years) shows Brazilian port FOB vs U.S. Gulf soybean prices for December–January vs later shipment, to quantify the spread and dig into how much is currency vs freight vs cost base vs harvest timing.
What the recent history shows
- Brazil’s FOBs fell through early 2025: AMS reports Brazil’s average soybean export price slid ~11% y/y to $392/mt in Q1-2025 as farm-gate prices (in USD) fell and the real depreciated, improving export competitiveness.
- Benchmark for U.S. Gulf: FAS (IGC series) notes U.S. Gulf FOB soy ~$415/mt in late Aug-2025; the circular’s charts use FOB U.S. Gulf vs FOB Brazil Paranaguá as the standard comparison.
- FX tailwind for Brazil: In Q1-2025 the BRL weakened ~18% (4.95→5.85 per USD), which lifts local-currency receipts and lets exporters price more aggressively in USD.
Quantifying the “50¢/bu” discount
Rule of thumb: 1 mt = 36.74 bu for soy. So:
- $0.50/bu ≈ $18.37/mt
- If U.S. Gulf is ~$415/mt (late Aug-2025), a Brazil discount of 50¢/bu is ~4.4% cheaper FOB; 70¢/bu ≈ $25.7/mt (~6.2%).
What’s driving today’s gap (Dec–Jan & wider later)
- FX + cost base: Brazil’s lower structural costs and a weaker BRL vs USD let shippers sell at lower USD FOBs without necessarily going below cost. AMS shows Brazil’s farm-gate/FOB levels eased into Q1-2025 while the BRL weakened — classic competitiveness boost.
- U.S. price run-up: A rally in CBOT + U.S. basis (Gulf, PNW, freight/carry) lifts U.S. FOBs relative to Brazil. FAS’s standard comparisons are exactly U.S. Gulf vs Brazil Paranaguá, and during late Aug-2025 U.S. prices were firm.
- Timing/seasonals: Brazil tends to front-load export programs around its harvest window; even while planting new-crop, exporters often hedge forward and book slots, which can show up as cheaper Dec–Jan offers and even wider discounts on deferreds when U.S. carries/storage/financing add up. AMS documents the seasonal logistics/landed-cost dynamics.
- Logistics & ocean: Brazil’s ocean and inland costs have been trending manageable (Q1 ocean +1–4% y/y; truck −8–10%), keeping landed costs to China lower and supporting aggressive FOBs.
Are they selling below cost?
On average, no. The combination of lower structural costs and FX typically explains the discount; AMS shows Brazilian farm-gate/FOB declines tied to currency, not systematic below-cost dumping. Local margins can be tight by region/period, but the broad discount is consistent with fundamentals.
