May 8, 2006

Brazilian soy farmers hit by unsold stocks amid soaring costs

Brazilian soy farmers are facing their worst crisis in 40 years as a strong local currency, soaring operating costs and unsold stocks weigh down on them.

Brazil's soy sector would decline if current market conditions continue, Steve Geld, processing director at Archer Daniels Midland Co's local division said on Friday (May 5).

World soy stocks of about 58.8 million tonnes are extremely high compared with consumption of 211.6 million tonnes. It may take several years for soy to return to more traditional levels, Geld said.

Andre Pessoa, chief analyst at Agroconsult, said nearly all production in Mato Grosso state and parts of other states were in the red due to the extra costs incurred through spraying for Asian rust fungus .

The Brazilian real, which most analysts and producers blame for the current crisis, is at five-year highs and has appreciated more than 35 percent against the dollar in the past two years.

This seriously affected producers' opportunity to make up for increased operating costs through export of their soybeans. Brazil exports about 70-75 percent of its soy.

Given such conditions, it would be very unlikely for Brazil to expand its soy production for the next five years, Geld said.

These developments have doused widely-held hopes that Brazil would overtake US as the top producer and exporter this year or the next, Geld noted.