March 30, 2009

Only a few months ago, prolonged dry weather threatened to cause significant losses in South America's key soy-producing states of Brazil and Argentina, but recent rains have brought some respite to the drought-stricken beans.

 

Despite soy farmers still facing losses, recent crop estimates indicate losses won't be as bad as feared, particularly in Brazil. Corn and sunflower crops are likely to suffer heavy losses though.

 

With Brazil's soy harvest around 45 percent complete, the crop is expected to hit 57.6 million tonnes in 2008-09, compared to 60 million tonnes in 2007-08, according to Brazil's National Commodities Supply Corp., or Conab.

 

Like in Argentina and Paraguay, southern Brazil faced a prolonged dry-spell between November and January, which threatened a significant reduction of the soy and corn crops.

 

Recent crop estimates, however, indicate soy losses in Brazil's southern state of Rio Grande do Sul, Brazil's No.3 soy-producing state, shouldn't be as large as expected.

 

Recent rains in Rio Grande do Sul have helped the soy to recover. The Rural Assistance Agency of Rio Grande do Sul, or Emater, estimates a crop of 8.4 million tonnes, above earlier estimates of 7.7 million tonnes.

 

"It seems that it rained at the right time in Rio Grande do Sul and that the weather reversed potential losses," Steve Cachia, a grain analyst at brokerage firm Cerealpar, said. A small number of farmers in Rio Grande do Sul are just beginning to harvest.

 

Soy tend to be more robust than corn, and with recent rains in Rio Grande do Sul, the beans were able to bounce back from the dry spell, while corn farmers faced losses.

 

Neighbouring Parana, the No.2 soy-producing state, saw more severe losses because its bean harvest began in January and February, leaving less time to recover from the drought. The recent rains helped and no further losses are expected, said Cachia.

 

Andre Pessoa, director of consultancy Agroconsult, said the drought was "frustrating" for Parana farmers. Parana's soy harvest should fall to 9.5 million tonnes in 2008-09 from 11.8 million tonnes in 2007-08.

 

Overall Agroconsult on Thursday (March 26) upgraded its soy crop production estimate to 57 million tonnes from an earlier estimate of 55 million tonnes, after collecting crop data from 13 states. Areas such as Mato Grosso did better than expected despite using fewer inputs.

 

Agroconsult said Brazil's first corn crop is seen coming in at 32.6 million tonnes versus 39.9 million tonnes in 2007-08.

 

The bulk of the losses were due to the dry weather in the south, especially Parana, while lower crop prices and higher fertilizer costs lead to lower production.

 

Brazil has two corn crops per year, and the first crop is currently being harvested.

 

Argentina's soy crop was hit hard by early drought, but the recent return to normal rain patterns has brought some relief.

 

Production is forecast at 42.5 million tonnes by the Buenos Aires Cereals Exchange, down sharply from early expectations of a record 50 million tonnes, but up from very pessimistic forecasts if the drought had continued.

 

As of March 20, farmers had harvested 6.7 percent of the 17.36 million hectares planted with soy this season, according to the exchange.

 

The corn crop was hit even harder by the drought, with production pegged at 13.8 million tonnes, down 35 percent from last season, according to the exchange.

 

Paraguay's 2008-09 soy production is expected to plunge due to the protracted drought, said Luis Cubilla, analyst at Paraguay's grain export chamber, or Capeco.

 

Capeco is expecting production to fall to about 4 million tonnes, down 41 percent from last season, Cubilla said.

 

"We're really worried because we have a small crop and poor grain quality," he said.

 

Paraguay, the world's fourth-largest soy exporter, was hit by two periods of extended drought this season. The crops suffered from a severe lack of rainfall in November and December and a then a new drought that started in February and is continuing this month.

 

The drop in production stands in sharp contrast to the early expectations for a 5-7 percent expansion in planted area.

 

With much of the soy crop still in the fields, the continued drought and blistering heat may cause production to fall even further.

 

"Even though we're heading in to autumn, it's still really hot - about 38 degrees (100 degrees Fahrenheit) in the shade - and that's complicating things even more than the lack of rainfall, Cubilla said.

 

Uruguay is expected to see farm output volume rise 20 percent from last season, according to a report prepared by the country's leading daily El Pais.

 

Soy planted-area hit a record 575,000 hectares this season and "steady rainfall since the beginning of January have changed production prospects" for the better, according to El Pais.

 

Soy output is expected to equal last year's about 770,000 tonnes, but may rise to as much as one million tonnes if the weather cooperates, El Pais said.

 

This season's rice crop suffered from drought and falling prices, with production expected to total about 1.15 million tonnes, a 14 percent drop from last season, according to El Pais.