USDA/FAS GAIN Report BR 6610: Brazil - Annual soybean report

Approved by: Alan D. Hrapsky, Agricultural Counselor, U.S. Embassy
Prepared by: Elizabeth Mello, Agricultural Attaché

Report Highlights

Rust, drought, and damp conditions at harvest curbed Brazilian soybean production yet another year. This year’s production will surpass that of last year’s drought-ridden crop, but for the first time in seven years, area is estimated lower. The combination of low international prices, rising costs of inputs and transportation, and the strong Real continues to cut away at farmers’ profit margins. Soybean production for 2005/06 is forecast at 56.2 MMT on 21.9 million hectares. Area in 2006/07 is expected to shrink again slightly to 21.4 million hectares due to farmers’ indebtedness and the generally adverse agricultural situation. However, production is forecast to increase to 57.5 MMT as yields should bounce back to more normal levels.

Executive Summary

Another year of unfulfilled potential describes this year’s soybean harvest in Brazil. Similar setbacks suffered last crop year were repeated; drought conditions in December, January and February affected the crop while the majority of it was in pod development. Then, overabundant moisture in much of the country caused harvesting difficulties and shriveled beans, while contributing to the spread of rust. Post’s current production estimate is 56.2
MMT with expected average overall yields of nearly 2.6 tons/ha. The area projection is 21.9 million hectares, a 4% decrease over last year’s area. Local soybean production estimates are the following: Conab: 55.7 MMT, IBGE: 55.8 MMT, Safras: 54.0 MMT.

Soybean area in Brazil is expected to decline for the second consecutive year. Area is forecast to decrease 2 percent for the 2006/07 crop year to 21.4 million hectares. Until factors shift in the domestic economy or in international markets improve in favor of soybeans, significant growth in area is not expected to occur this year, even in expansion areas. Some soy acreage is expected to go to rice, not only in the South but also in Mato
Grosso. Because rice is not typically exported and is quoted in the strong domestic currency, it is an attractive alternative. In regions such as the Center-West and the North, soybeans are the main option for farmers and production must continue. However, some portion of the area in the Center-West will go out of production and will be planted with groundcover or will be used for pasture. In the case of the South, Post expects a continued shift to other commodities.

The current overall scenario of high input costs and low prices is expected to discourage farmers in general from expanding the amount of acreage they have under production. In addition to decreasing margins, the strength of the Brazilian currency also has decreased the competitiveness of Brazilian agricultural exports. On April 27, the Dollar slumped to 2.1, its lowest exchange rate against the Brazilian Real in five years, bad news for Brazilian soybean farmers.

Post forecasts 2006/07 production at 57.5 MMT, with average yields of nearly 2.7 tons per hectare, assuming that weather problems do not interfere with the crop. This more conservative projection for next crop year is due to the unfavorable economic conditions currently in play in the Ag sector, which are discouraging farmers from pursuing more aggressive production strategies. Due to large stocks and continuing big production in the U.S., the international market is bearish on soybeans. The comb ination of low international prices, rising costs of inputs and transportation, and the strong Real that cheapens exports, continues to cut away at farmers’ profit margins. It would appear that farmers in Brazil have still not reached the end of the tunnel, and are for the most part, have seriously depleted their resources. After three years of adverse conditions, the vast majority of farmers are not in a positive financial position and the mood of the sector is quite austere. A 10 milliondollar emergency government bail-out program will put off producer debt a while longer and keep the majority of farmers planting. The sector will need an excellent crop year, however, to pull out of the financial mess it currently is in.

Crop yields for 2005/06 are expected to average just below 2.6 metric tons per hectare, in line with the five-year average and an improvement over the past two problematic harvests. Yields in the center-west area of Mato Grosso and Goias, known as the highest-yielding soybean states in Brazil, due to rust, drought, and excess humidity are expected to take a hit this year. Brazilian research entity Embrapa estimates that half of this year’s losses can be attributed to rust.

Full report in PDF format: http://www.fas.usda.gov/gainfiles/200605/146187635.pdf