March 9, 2012

After registering more losses from the drought that has hurt yields in the southern grain belt over the past several months, Brazil's government again cut back its forecast for soy production and exports on Thursday (Mar 8).

The dry weather over the Southern Cone grain producers - Brazil, Argentina and Paraguay - has helped support Chicago soy prices since December, as the spectre of food inflation creeps back into traders' thinking.

In the latest monthly forecast of the government's crop supply agency Conab, Brazil's soy harvest that is now peaking is expected to reach 68.75 million tonnes, down slightly from the 69.23 million tonnes estimated in February.

Area planted to soy grew by 3.3% this year over last to a record 24.97 million hectares, but yields were the culprit behind the deteriorating output. They fell 11% to 2.753 tonnes of soy a hectare.

Dry weather over No. two soy state Parana and No. three state Rio Grande do Sul, both in the south, caused the greatest damage to the overall crop, with yields falling 27% and 30%, respectively. But even yields in the No. one soy producing state of Mato Grosso were off slightly.

Conab also lowered its outlook for soy exports to 31.8 million tonnes from 32.4 million tonnes shipped last season, the first drop in exports in at least five years. The agency raised its view again for Brazil's total corn output, however, to 61.7 million tonnes from 60.83 million last month, due to an expected surge in winter corn crop planting.

Total grains output for Brazil should fall 3% to 157.8 million tonnes, as the dry weather over much of the farm belt offset the 3.6% increase in planted area this season, Conab said.

The government's cotton lint outlook is unchanged from February at two million tonnes. Wheat output is seen at 5.79 million tonnes, with imports expected to total 5.6 million tonnes in 2011/12 to cover the rest of Brazil's roughly 11 million tonnes annual demand.