November 24, 2009

 

 

Brazil soy area has reached 76 percent planted, well ahead of the 5-year average of 66 percent, according to a US Department of Agriculture attache report posted Monday (November 23) on the Foreign Agricultural Services Web site.

 

The USDA now forecasts record 2009-10 soy area planted at nearly 22.85 million hectares and record production at 63.6 million tonnes (mt) based on a 2.785 tonnes/hectare (ha) yield estimate. These forecasts represent a 5 percent increase in area planted and an 11.5 percent increase in production from 2008-09, 21.7 million hectares and 57.1 million tonnes, respectively. USDA's projection is similar to that of public and private analysts in Brazil. The Brazilian Institute of Geography and Statistics (IBGE) projects 2009-10 production at 63.7 mt on 22.7 million hectares. Conab's (Brazilian Food Supply Company) second survey projects 2009-10 production in the range of 62.5 to 63.6 mt while Celeres private consultants forecast 64.6 mt produced on 22.86 million hectares.

 

Higher projected profitability of soy vis-a-vis corn, mainly due to a 30 percent production cost difference, spurred significant acreage substitution leading to record soy planting intentions for 2009-10. This substitution escalated over the past month in the southern region of Brazil as wet conditions extended beyond the corn planting window and resulted in a delayed wheat harvest.

 

The national planting pace in 2009-10 continues 10 percentage points ahead of the 5-year average with 76 percent of area already planted. Safras private consultancy reports the centre-west region is further advanced at over 90 percent planted with Mato Grosso state 96 percent planted. The southern region is lead by Parana at 88 percent planted with Rio Grande do Sul and Santa Catarina, 37 and 45 percent planted, respectively. The Northeast region is around 50 percent planted and includes Bahia state and the "Mapito" region (adjoining area of Maranhao, Piaui, and Tocantins). Weather permitting; planting should be completed by mid-December.

 

El Niño rains arrived in August this year, earlier than historic norms for El Niño weather patterns. This aided early planting and germination across the Centre-west and Northeast regions. The El Niño weather pattern brings increased regular rains extending from the Southern to Centre-west regions and irregular rains ending earlier in the season to the Northeast region. In most states, sprouting began just after the lifting of the vazio sanitario - a 60- or 90-day period in which planting is prohibited to control soy rust. Soy rust remains a concern with 19 official detections confirmed compared to only 1 detection at this time last season. Rust appears well managed in Brazil with negligible effect on yields; however, increased fungicide applications could impact producer's returns under current tight profitability margins.

 

Post estimates national average yields at 2.785 t/ha, slightly lower than good season norms above 2.8 t/ha due to increased usage of lower yielding early maturing soy varieties and of lower yielding acreage substitution in southern Brazil.

 

Committed future sales slowly advancing for 2009-10 soy crop In contrast to the record planting pace this year, post contacts report committed future sales of the 2009-10 soy crop have slowly returned to historic norms with approximately 20 to 25 percent of the future crop sold. USDA contacts also report some early buying by China for beans to be delivered the beginning of February. Exports are commencing earlier in the year as advances in seed technology continue to shorten the growing period of early-maturing varieties.

 

Profitability always a concern for farmers, exacerbated by exchange rate woes lower production costs have improved margins for farmers this year.

 

However, a potential record South America soy crop has pressured futures market prices downward. Sophisticated well-capitalized producers have already hedged on a future price for adequate profit taking depending on their regional basis. The futures market has recently provided a few windows for profitable hedging, due to fund buying. However, with only an estimated 25 percent of producers hedging, the physical market price at harvest time will continue to determine profitability across much of the sector.

 

The Brazilian Real vis-a-vis the US dollar has remained stable, trading at R$1.70 to US$1.00, and continues to adversely impact profitability as producers hope for a more favourable exchange rate come harvest time. Debt, logistics, and lack of credit still plague the profitability of some producers in Mato Grosso, who produce 30 percent of the national crop. Soy still possesses the most liquidity of any production crop in Brazil also contributing to the increased acreage this year.