Brazil: Conditions Right For Soy
1 April 2008 Weather and international prices have Brazil primed for a very strong crop. At present, crop conditions are “good to excellent, with minimal weather problems in Mato Grosso and Rio Grande do Sul,” according to a report from the US Dept. of Agriculture’s Foreign Agriculture Service (USDA-FAS). The currently forecast production of 60.1 million metric tons (MMT) from 21.7 million hectares (m. Ha) still appears likely.
Lower yields in Goiás state and higher yields in Santa Catarina may alter total production figures, but these adjustments are expected to be minor.
Generally, soybeans were planted anywhere from 8 days (Paraná state) to an entire month late, which helped lead to significantly less soybean rust disease, but also to a very wet harvest, particularly in Mato Grosso state.
La Nina has not had the negative impact on Brazil that was first expected. This week, in addition to raising its planted area estimate by 200,000 Ha, Conab raised its production estimate by over 1 million tons due mostly to the lack of La Nina effects on the crop.
Record Prices, Limited Profit in Center-West
Despite historically high prices on the Chicago Board of Trade (CBOT), Brazilian soybean farmers are still struggling. The first factor cited by USDA-FAS is farmers’ timing in selling their soybeans: as much as 70% of Mato Grosso farmers sold their crop before the CBOT price rally last fall, often at or below US $12 per bushel. Current soybean prices are $16 per bushel.
Another major limiting factor for farmers in Brazil, like farmers everywhere, is the escalating cost of inputs. Fortunately, most farmers who sold at lower prices also negotiated inputs at lower prices. Fertilizers and herbicides have increased about 75% over the course of the season. Still, few producers will actually lose money this season, as profits in the Rondonopolis area are reported as high as $170 per Ha.
In Southern Brazil and other areas close to ports, margins will be higher due to lower transportation costs. Transportation in Mato Grosso are estimated to total up to half of farmers’ total costs in this state, especially in the central producing area of Sorriso/Lucas do Rio Verde/Nova Mutum, which are the largest soy-producing counties in the country.
Inputs Strain Budgets
The main concern for Brazil’s farmers is the sharp increase in input prices. In the case of fertilizer, average NPK use increased from $200 per Ha in 2006 to $300 per Ha in 2007. In February, NPK cost approximately $750 per Ha and is expected to cost as high as $900 this year.
Likewise, herbicides have nearly doubled from $3.90/liter to $6.90/liter. Chemicals used for combating rust and pests (fungicides and insecticides) have also increased.
Outlook Still Positive
High international prices and a good 2007/08 harvest are expected to stimulate an area increase next year. While many farmers are still carrying debts, the extension and rollover of debt and a possible pardon of accumulated interest which is expected to be announced by the Brazilian government by the end of the month will be a deciding factor in the increase in area.
USDA-FAS expects an increase in the soy area of 5% to 10%. The North and Center-west will experience the majority of the area growth, while Mato Grosso, Maranhão (especially Chapadinha area), Piaui, Tocantins, and Western Bahia will experience highest growth relative to this year’s area, per USDA-FAS projections. Corn prices will also have a small impact, as summer corn planting in Brazil should continue to rise modestly. An expectation of more soy and less corn planting in the US is expected to impact what are already historically high Brazilian corn prices.
Production costs are expected to rise right along with the area increase in 2008/09. According to Conab, the cost of production per Ha in Brazil will increase at least 16.2%.
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