South America Calling

Forward sales of Brazil's 2013-14 soybean crop have been extremely sluggish amid the massive uncertainties surrounding the upcoming season.

Farmers have only committed about 5% of their projected 2013-14 soybean crop compared with nearly 40% at the same time last year, according to Fernando Muraro of the AgRural grains consultancy.

"A lot of decisions have yet to be made about the 2013-14 crop," the analyst told a farm conference in Sao Paulo.

The principle question is whether farmers will make any money out of planting soybeans next year.

Margins have been extremely healthy for the past three years, but will likely be squeezed next season.

In 2012-13, average projected soybean margin on operating costs in Sorriso, Mato Grosso is 813 reals per hectare ($16.06 per acre). But that will shrink to 341 reals per hectare ($67.34 per acre) next year, said AgRural.

It's even tougher than usual to make predictions such as these this season as soybean markets are extremely volatile and nobody knows where Brazilian transport prices will go.

Freight costs skyrocketed this year. The cost of transporting a ton of soybeans from Sorriso to Parangua touched 300 reals per ton ($3.98 per bushel) in March, well over 50% up on last year as Brazil's overstretched storage, transport and port infrastructure failed to cope with growing demand.

With few infrastructure improvements on the horizon, the situation may get worse and grain buyers are reticent about offering forward soy contracts for delivery in producing regions, and thus exposing themselves to the risk of freight costs ballooning once again.

The government has pledged to expand funds for the building of silos over the next year. But that will not be enough, says Luis Barbieri, China Oilseeds Manager at Louis Dreyfus Commodities.

"The soybeans need to be shipped during our (Brazil's) export window. We need more trains and ports," Barbieri told the conference.

He estimates agribusiness had lost $1 billion over the last eight months because of the infrastructure crisis that has hit Brazilian agriculture.

It's a problem that used to cut margins, but is now so acute that it will impede the growth of Brazilian agriculture.

Still, Brazilian grain farmers base everything around their summer soybean crop and will likely increase planted area next year.

If May 2014 Chicago futures remain below $14 per bushel, that growth will only be 2%, to 70.4 million acres, while if prices rise above $14, area may expand 3% to 5%, to 72.6 million acres, Muraro forecasts.

Based on the top-end forecast, soybeans will take over a million acres of first-crop corn area (corn is increasingly viewed as a winter crop), over a million acres of converted pasture and over a million acres of newly-opened Cerrado brushland, said the analyst.

"The level of uncertainty makes it very hard to decide what to do though," said Julio Toledo Piza, CEO at BrasilAgro, a local corporate farm.

(AG/CZ)

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