Brazil Grain Rebounds
15 March 2006 The US Department of Agriculture’s Foreign Agriculture Service (USDA-FAS) forecasts Brazil’s maize production in 2005/06 at 41 million tons, which is 6 million tons greater than last year’s drought-devastated crop. Maize imports are forecast at 500,000 tons and exports at 1.1 million tons for the marketing year. Maize production for 2006/07 is forecast up 500,000 tons to 41.5 million tons on 12.5 million hectares (Ha), down slightly from the current crop area estimate.
Wheat production in 2005 was 4.8 million tons with marketing year imports forecast at 6.1 million tons. With the support of government incentives, exports are forecast at 550,000 tons. The planted area in 2006 is estimated to be 2.4 million Ha, virtually unchanged from 2005, though production is forecast up slightly to 5 million tons.
Economic indicators suggest that the economy fared well in 2005 despite the effects of the political crisis Brazil is experiencing in Congress, which directly involves President Lula. Economic growth in 2005 was 3.31%. The outlook for 2006 calls for more favorable market conditions. Market analysts and government institutions project economic growth between 3.5% and 4%. Inflation is expected to decrease, finishing the year at 4.6%. Lower interest rates and a higher average exchange rate are likely to have a positive impact on the performance of the agriculture sector.
Although forecasts are optimistic, the Brazilian economy may experience some instability in 2006 due to the upcoming presidential elections in October. The current political crisis has strengthened the competition for the presidential campaign and the opposition poses a major threat to Lula’s reelection, despite the popularity he has enjoyed through much of his presidency.
For 2005/06, maize area is at 12.6 million Ha and production at 41 million tons with 31.9 million tons from the summer crop and 9.1 million tons from the winter crop, which is now in the initial stage of planting. Production in 2004/05 was just 35 million tons, 7 million tons less than the previous year. As a result of this diminished crop, prices are expected to react strongly in the second half of 2005 and stimulate increased maize area.
Though the area planted for the 2005/06 summer crop did increase, the price of maize was low at planting and has continued to be weak since then. The reasons for the low prices include that last year’s winter maize crop ended up a bit larger than most expectations, an unusually large amount of low quality wheat entered feed rations, there are plentiful supplies of sorghum, and maize exports have virtually ceased due to a strong currency and relatively low international prices. All these factors lead to poor producer returns for last year’s summer and winter maize crops.
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