July 2, 2007

 

Argentina, Brazil soy prices seen higher this year on lower US soybean output
 

 

Soybean prices are going to have to climb even higher to entice Brazil and Argentine farmers to make up for the sharp decline in US soy planting this year, according to analysts.

 

Soybean prices at the Chicago Board of Trade (CBOT) opened limit up Friday (June 29) due the US Department of Agriculture's much lower-than-expected 2007 acreage figure of 64.081 million acres, magnifying the need for ideal growing conditions and the need to entice South American producers to plant more soy acres, analysts said.

 

"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," said a trader at a US multinational soy exporter in Sao Paulo.

 

November CBOT soybeans settled up 39 1/2 cents a bushel at $8.81 3/4. The real opened at BRL1.920 per dollar Friday in spot contract trading, stronger from Thursday's close of BRL1.922 per dollar.

 

In Argentina, sky-high corn prices over the past months have led farmers to commit to the crop, said AgriPac Consultures analyst Pablo Adreani.

 

However, Argentina's grain production is expected to grow sharply across the board, with an extra 400,000 hectares going to soybeans next year and 500,000 more hectares expected to be sown with corn, Adreani said. Argentina harvested around 16.1 million hectares of soy and 3.57 million hectares of corn in the 2006-07 season.

 

Brazilian farmers need to see higher prices to convince them to plant even more soybeans, analysts said. A weak dollar and high input and transportation costs have taken a bite out of rising soybean prices. Like most commodities, soybeans are dollar-denominated.

 

The dollar is trading at six-year lows around BRL1.92, with many analyst expecting a fall to BRL1.80 by year's end.

 

Yet if soybeans values rally over $9 per bushel to around $10 per bushel, then both Brazil and Argentina have the ability to meet demand. What they won't be able to do, analysts said, is make up for all of the production the US is taking out of the market.

 

"The scenario has changed," said Flavio Franca, a soy market analyst for Safras & Mercado. "If prices go to $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 increase soy planted area by 5% from the 20 million hectares planted in 2006-07.

 

In Argentina, increased area is expected to come from land currently occupied by beef herds, with export limits on beef, domestic price controls and surging grain prices fueling the continued conversion of land from pasture to crops, Adreani said.

 

While the area under cultivation is expanding to more marginal areas along the periphery of the traditional farm belt, the shift from cattle is providing most of the area for gains, Adreani said. Cattle were displaced by grain on some 1.2 million hectares across Argentina last year, according to Adreani.

 

Last week, Oil World said that Argentina will plant 200,000 hectares more with soybeans next year but that production would fall 1 million tonnes to 46.2 million tonnes, as yields broke records this year due to heavy rainfall. Brazil harvested around 58 million tonnes in 2006-07, according to the country's National Commodities Supply Corp. There are currently no planting intentions available in the Brazilian market.

 

Argentina is the third largest soybean exporter following Brazil and the US

 

All this implies tight soybean supplies around the world next year, unless of course Argentine and Brazilian farmers receive an offer they can't refuse.

 

"Let's put it this way, this market is going to boom and US$9 a bushel is going to be reached any day now. The US just took about 15 million tonnes of soybeans out of the market if you consider acreage and last year's yields," Franca said.

 

"Then you have to add growing international demand to the equation, which is about 10 million tonnes. I highly doubt that South America will be able to produce 25 million tonnes extra of soybeans next year," he said.