January 10, 2006
Brazil’s 2005-06 Crop Production Estimates Range Between 59 And 61 Million Tonnes
The Brazilian Census Bureau (IBGE) said last week the nation would harvest an estimated 59.2 million tonnes of soybeans in 2005-06, up from 51.1 million tonnes in 2004-05. IBGE said soy production will grow by roughly 15.8% over 2004-05 harvest, but planted area will be only 23 million hectares because of crop losses due to dry weather in the previous season that ultimately added to liquidity problems on Brazilian soy farms.
USDA estimates are somewhat more optimistic, they believe that Brazil’s soybean production could be 61 million tonnes with an expected yield of 2.8 tonnes per hectare. USDA also expects a 4% drop in area dedicated to soybeans in 2005-06. USDA believes that the largest reduction should take place in the state of Mato Grosso; with significant reductions also taking place in Goias, Parana, and Rio Grande do Sul, the state in which drought conditions were worse last crop season. Piaui is the only soybean state with an estimated increase in area this year.
Other analysts are not so optimistic because of input costs, Asian rust potential and most importantly, weather issues.Last year, Rio Grande soybean farmers lost 6.6 million tonnes out of the estimated 9.2 million tonnes of 2004-05’s crop because of dry weather between November 2004 and February 2005. This year, February temperatures are expected to be below normal in February, which is favorable for Asian soybean rust.
Asian rust is another factor that could determine the success of Brazil’s crop. USDA reports that small and medium-sized farmers may be out of the cash needed to spray if rust attacks. This year, cases have been detected in Mato Grosso in plants in a much earlier stage of development compared to last year. Greater amounts of rain this year have also contributed to the early appearance of rust, USDA said.
While production likely will grow, profit margins will be cut by the strong Brazilian Real, which makes inputs more costly and exports less lucrative.Brazil’s currency appreciated 20% against the dollar in the past twelve months and transport and production costs also have tightened. According to USDA, the super-high cost of capital has dimmed the appeal of planting soybeans. Although farmers receive subsidized loan rates, extremely high Brazilian interest rates are dampening investments in the agriculture sector.
PAGE TOP Brazil Offers Farmers Additional Soybean Rust Assistance
Brazil’s Agriculture Ministry said last week that it will make 200 million Brazilian Reals ($86.9 million) available in credit to help farmers fight Asian soybean rust in the central-west region of the country. Interest rates range between 6% for small producers, 8.75% to mid-sized producers and 10.75% for large soy operations. Brazil’s benchmark interest rate is currently 18%.
Asian soybean rust was first found in Brazil in 2002 and has since spread to Brazil’s major soy regions. Since then, Brazilian farmers have lost an estimated $2 billion annually fighting the fungus. Out of the total, nearly $1.2 billion are due to crop loss, according to the Agriculture Ministry.
Cofco And CGOG Set To Merge; Dalian Commodity Exchange To Launch Soyoil Futures
China National Cereals, Oils and Foodstuff Corporation (Cofco) is expected to merge with China Grains and Oils Group (CGOG) to form a company with total assets of $7.43 billion. According to a report from the China Business News, the state-owned Assets Supervision and Administration Commission has given the go-ahead for the merger and it is expected to be announced soon. The merger of Cofco and CGOG is apparently aimed at boosting the combined company’s competitiveness against global grain and oils heavyweights.
Meanwhile, China’s Dalian Commodity Exchange has decided to launch trade in the country’s first soyoil futures January 9. Soyoil futures will become the second commodity futures to be launched this year, after trading in sugar futures began trading January 6 on the Zhengzhou Commodity Exchange. The new soyoil contracts will complement the Dalian Commodity Exchange’s existing soybean, soymeal and corn contracts. China’s futures market is off-limits to foreign investors.
India Continues To Import Vegetable Oils Despite Good Domestic Supplies
Despite good availability in domestic markets, India’s imports of vegetable oil in November rose to 327,585 tonnes from 316,426 tonnes in the same month of 2004. “We expect imports of edible oil for calendar 2005 to be around 5.04 million tonnes, more or less the same as they were last year,” said B.V. Mehta, executive director of the Solvent Extractors’ Association of India.
Imports of refined oils were pegged at 11,248 tonnes in November down from 23,889 tonnes in November 2004, but crude oils were reported at 316,337 tonnes against 292,537 tonnes during that month last year. Crude oil thus constitutes 97% of total vegetable oil imports.
Edible oil imports are expected to remain flat at around 4.8m tonnes for 2005, due to a projected bumper harvest of oilseeds. Analysts estimate that another two years of similar oilseeds production could see China surpass India as the world’s largest importer of edible oil. China’s edible oil imports are expected to go up by 15% or more this year, bringing total imports to around 4.4 million tonnes, compared with 3.8 million tonnes last year. China has been particularly interested in soyoil imports to meet ballooning domestic demand.
Soy Complex Lower On Talk Of Rains In Argentina And Avian Flu Cases In Turkey
The soy complex closed lower on January 5 reflecting talk of rain in Argentina and concerns about feed demand after two human bird flu deaths occurred in Turkey. The funds were net sellers across the complex for the first time this week as sell stops were hit in a lightly traded session. The soybean fundamentals are about as burdensome as they have ever been which makes the market vulnerable to a sharp decline in prices if the market becomes convinced that South America with have decent crops. January bean futures closed down $4.78 finishing at $223.40; March was $5.05 lower, closing at $227.26; and May lost $5.24 ending at $230.56. January meal was down $6.94, closing at $208.11; March was $6.17 lower, finishing at $210.87; and May decreased $4.96 to finish at $213.52. January oil closed $5.95 lower to finish at $505.96; March decreased $8.60, closing at $511.96; and May lost $9.26, ending at $519.18.
