July 2, 2007

 

Brazil soy outlook may change on latest US soy, corn report
 

 

The world is no longer flat for Brazilian soy farmers following a US Department of Agriculture report release Friday that is certain to push soybean prices well over US$9 per bushel.

 

"The scenario has changed," said Flavio Franca, a soy market analyst for Safras & Mercado. "If prices go to US$10 a bushel, and that's a real possibility, you will have farmers planting soybeans in clay pots and flower vases."

 

Analysts earlier this week had said that in the best case scenario Brazil would up soy planted area by 5 percent from the 20 million hectares planted in 2006-07. Not anymore. Since the USDA put US soybean plantings at 64 million acres, or roughly 26 million hectares, soybean prices started rising.

 

"If Chicago goes to US$10 a bushel, it will make a hell of a lot of difference for the professional farmers," said Steve Cachia, a soy market analyst for grain brokerage Cerealpar.

 

"It seems prices are headed higher in 2008, which could stimulate interest to increase plantings perhaps more than our guess on Thursday," Cachia said. He had said Thursday that Brazil would increase area by no more than 5 percent.

 

Farmers have said that a weak dollar and high input and transportation costs were taking a bite out of rising soybean prices.

 

The dollar is trading at six-year lows, around BRL1.92, with mostly everyone in the market saying they would not be surprised if it falls to BRL1.80 by year's end.

 

High farm debts and other credit woes are also seen as a hindrance to soy expansion. The more Brazil plants, the more pressure there is on Chicago Board of Trade soybean prices to fall. But the less Brazil plants, the likelihood that CBOT soy futures will remain high are a near guarantee, analysts said.

 

None of Brazil's top agribusiness news and consulting firms has released 2007-08 soy planting intentions at this time.

 

"This (USDA) news is a big stimulant for soy growers here. The biggest question now is what the dollar is going to do," said a trader at a US multinational soy exporter in Sao Paulo.

 

"You need at least US$9 per bushel, and if the dollar falls to 1.80 (Brazilian reals), that's not going to be enough to entice these guys," he said.

 

Antonio Carlos Ostrovsky, the lead agronomist for Brazil's largest farm cooperative, Coama, in Parana state, said that it was too early to judge farmer reaction.

 

"Right now if south Brazil farmers increase soy plantings by 2 percent, it's a lot," said Ostrovsky.

 

"Farmers also have good corn prices to tend with, so a lot will depend on where they are going to get a better price," he said.

 

A 58 billion Brazilian real (US$30 billion) farm loan package, announced Thursday (June 28), did not do much to animate the local market on crop planting intentions. But Friday's USDA report will likely change the scenario here so long as the dollar doesn't fall further.

 

"If you have a dollar at 1.90, but soy at US$10 per bushel, soy farmers will make a lot of money," Franca said.

 

Brazil is the world's No. 2 soy producer behind the US.