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Brazil producers to plant more soybeans, but with a price

Agriculture.com Staff 08/10/2007 @ 8:30am

Better international prices, the new renegotiation of debts approved by their government in July, and the easing pressure from a troubled currency are likely factors expected to stimulate Brazilian farmers to plant more soybeans in the 2007/08 season, beginning in September.

Acoording to AgRural's first soybean planting intentions, estimated recently, the planted area in Brazil will reach 22.8 million hectares (1 hectare = 2.47 acres), 7% more than last year and 1% ahead of the 2005/06 season. This means that Brazil will not just recuperate the area lost last season, but will plant a little more than two seasons ago. This will not reach the record of 2004/2005 production, when Brazilian farmers planted 23.3 million hectares.

RECORD IN THE SOUTH

The acreage increase amounts are nearly equal in the two most important Brazilian growing regions: 8% in Center-West and 7% in South. While Center-West is boosting soybean acres slightly from a year ago, the South is likely to plant a record area of 9.1 million hectares. The state of Paraná, with a record of 4.4 million hectares, is the second largest soybean-growing state in Brazil. In 2006/07, the South had already planted more because of lower input costs and market prices.

With a 15-year trend line yield of 2.782 kg per hectare (ironically, the same obtained in 2006/07), Brazil can produce a record of 63.3 million tons of soybeans in 2007/08. The higher prices on the Chicago Board of Trade are a strong incentive to plant more soybeans. But farmers know their situation is far from the positive outlook seen before the crisis. Since the 2004/05 season, the real has been hurting against the U.S dollar. In July, US$1.00 reached R$1.84, the lowest level since 2000.

Meanwhile, Fernanado Muraro, AgRural market analyst, says Brazil President Luiz Inacio Lula Da Silva's economic politics allow that the real be undervalued in relation to the dollar. "And, together with a 7.5% interest rate, the exchange's differences negate the higher CBOT prices," says Muraro.

The U.S. dollar plays a big role in setting the Brazilian soybean prices. For example, CBOT price + export premium or discount - transportation costs = producer price.

The problem is that transportation costs are in real, and these costs get higher in the dollar when Brazilian currency gets stronger. This means that Brazilian farmers lose twice: when they pay the transportation costs and when they receive in real for their product.

The worst case is the northern region of the number one soybean state, Mato Grosso, because it is so far from the exporter ports.

The general challenges are to pay the debts and to regain confidence and credit. But, the big challenge facing the Brazilian soybean grower is to be an even more efficient producer and marketer. Although Brazilian producers are very good at growing the crop, they need to learn about hedge and risk-management strategies to improve.

Better international prices, the new renegotiation of debts approved by their government in July, and the easing pressure from a troubled currency are likely factors expected to stimulate Brazilian farmers to plant more soybeans in the 2007/08 season, beginning in September.

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