Market Matters Blog
Pat Hill DTN Markets Editor

Tuesday 03/09/10
Brazil Raises Expectations for Soy Harvest

With harvest in full swing in Brazil, there will be lots of interest in where USDA pegs production and yield in the S&D tables on Wednesday.

Last month, USDA hiked its estimate a million metric tons to 66 MMT, and there are guesses on both sides as to whether we'll get another increase this month as well.

If it's any indication, Brazil's crop supply agency Conab today upped its estimate to a record 67.57 million metric tons. Conab was already above USDA in February, at 66.73 MMT.

Another agency in Brazil, the equivalent of our Census Bureau, IBGE also raised its crop estimate, from 66.1 MMT to 66.9 MMT.

Soybean watcher Michael Cordonnier told readers of his newsletter he is with USDA in a 66 MMT estimate. Cordonnier said yields in Mato Grosso are "probably a little disappointing" but are expected to be very good in Parana and Rio Grande do Sul.

How much market impact should we expect if USDA does hike its numbers? As one private analyst said in a morning newsletter, that may depend on how bullish one is about Chinese demand -- and if that's the case, then another number to be looking at in tomorrow's tables will be Chinese imports, which USDA pegged at 42.5 MMT in February, up a half million tons from January and 1.4 MMT more than a year ago.

Some market-watchers are actually leaning the other way -- expecting that USDA may clip its estimate for Brazil rather than increase it. So for those traders, an increase in the number in the morning could be a bearish surprise.

For producers in Brazil, both Cordonnier and DTN South America Correspondent Kieran Gartlan have pointed out that current prices are below the cost of production. In his "South America Calling" blog, Gartlan said Mato Grosso prices in early March were about $1.30 to $2.30 per bushel below the cost of production. Cordonnier talked at length in his newsletter about transportation issues in Mato Grosso this year, which are both raising the costs for farmers and also slowing harvest and the shipment of beans to export facilities.

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Posted at 11:44AM CST 03/09/10 by Pat Hill
Comments (3)
No disrespect to Mr Gartlan intended but I really have to question his estimate for soy production costs in Brazil as he mentions in his blog. He's using $343-$388/acre. Purdue University estimates the variable cost of producing average yields (49 bpa) beans in Indiana is @ $200/acre this year or less than $4/bu out of pocket costs. Bean values in local currency in Brazil are just slightly lower than they were they were 4-5 months ago . If they are really facing those kind of losses, it begs the question why they chose to plant them and a record level of production at that... ? I hope he can help me with the math how that works.
Posted by ken morrison at 3:31PM CST 03/09/10
Good question. First of all the numbers are from the national farm group CNA, and are confirmed by similar studies from the Mato Grosso agricultural research institute, known as Imea (www.imea.com.br for those who can read Portuguese). I think the main difference between the U.S. corn belt and Mato Gross is soil quality and climate. Soil is poor in Mato Grosso and farmers need to use a lot of fertilizer (400 lbs/acre on average). Tropical conditions also means greater pressure from pests and disease, thus higher chemical costs. Along with using more inputs, farmers in Mato Grosso have to pay more for inputs due high transport costs and long distances involved (1,300 miles from the port). Now, you rightly ask why they bother producing if the cost of production is so high. Well a few years ago, when the exchange rate was R$3/dlr, they were able to make money. Since the local currency got stronger, expansion has stopped in Mato Grosso (planted area hasn't changed since 2005). Many farmers are still paying off debts from heavy expansion at the beginning of the decade, so cannot afford to cut back on area (due to high overheads etc.) and for the odd year when they do actually make a profit, like last season when the exchange rate when to R$2.40/dlr. It is not feasible to export beans from Mato Grosso at the current exchange rate (R$1.78/dlr) and I think that is why the state is concentraing on boosting local industry (crushing, biodiesel, pork and poultry) to boost local demand and add value to their bean production - probably the only way they can continue in business.
Posted by KIERAN GARTLAN at 7:39AM CST 03/10/10
We can agree on a couple things.... betting on a weaker REAL and that relatively cheap/abundant protein in Brazil will eventually translate into competition in another form... by increased share in global meat trade (pork, beef, and poultry). It still doesn't make much sense to bet the farm so to speak that a weaker REAL will bail them out when they begin, as you suggest, more than $2/bushel in the 'red' when they planted ..... but maybe that's indicative of the Brazilians risk appetite or else a very accomodative banker... I do suggest you dig a little deeper into those variable costs ... I'll bet you'll find the gap is not as wide as those figures suggest
Posted by ken morrison at 10:28AM CST 03/10/10
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