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A Brazil soybean comeback
Curitiba (Brazil) – In just 30 days, the grain crop went from heaven to hell in South America. Up until November, Brazil, Argentina, and Paraguay were heading for another record season in 2011/12. But an extended drought period coupled with high temperatures that hit the crops at the time they need water the most, during the reproductive stage of development have dried up the dream. The potential was for 135 million tons (mmt) of soybeans and over 93 mmt of corn. But because of the influence of the La Niña, the three South American countries lost about 20.0 mmt of soybean and more than 6 mmt for corn, Gazeta do Povo's (a Brazilian newspaper) Crop Expedition data shows. In the most battered by the drought in southern Brazil alone, the damage is estimated at about US$ 4 billion.
The extreme losses have raised the soybean prices in the Chicago Board of Trade, but had a extraordinary effect over the domestic markets in South America. In Brazil, prices even surpassed their 2008 peaks. At times, farmers sold their soybeans at higher price than those traded in Chicago, a very unusual situation. In an attempt to secure grains for the second semester of 2012, the Brazilian crushing industry had to pay higher prices than those offered by the export market. While the board of trade dropped to the $13.80, local buyers were offering farmers $ 14.70 per bushel in Parana state.
With strong international demand, driven mainly by the Chinese market, the country has accelerated its soybean exports, despite the reduced supply. In the first four months of 2012, a period that usually concentrates the shipments, the country increased soybean sales by 36%, 11.25 mmt, 3 mmt more than in the first quarter of 2011. More than half of that amount was shipped to China. Soybean oil and soybean meal exports were also up, by 20% and 8%.
The fast export pace reduced the Brazilian soybean stocks to one of the lowest levels in recent years and forced the crushing industry to slow down. According to Brazilian Association of Vegetable Oil Industries (Abiove), the country will process 34.5 mmt of soybeans this year, 6.25% below last year (36.8 mmt). To prevent a greater decrease in crushing, the domestic industry is preparing to import more soybeans than usual this season. "There is a risk of shortage in the last quarter. So we have started to plan ahead to seek [soybean] in Mato Grosso, if necessary "says Luiz Lorenzo, president of Cocamar, a large cooperative in Northern Paraná. The state, which is the second top soybean producer of the country and also one of the most affected by drought in Brazil, expects to crush 1 million ton of soybean this year.
Carlos Cogo, market analyst with Cogo Advisory in Porto Alegre, believes the battle for soybeans in the domestic market will drive Brazilian prices up in the second semester, a tendency which tends to soften once the US crop enters the international market. "Meal supply should be enough. But it will be interesting to watch the domestic industry and the export market deal with the grain and oil scarcity."He adds that some biodiesel plants in Rio Grande do Sul state, the most battered by the drought in Brazil, are seeking alternative grains to turn into fuel.
The list of potential suppliers to meet the extra demand includes Paraguay and Argentina, two neighboring countries that were also affected by drought, even in larger proportions than Brazil. The total amount of grains to be imported should not be significant, because the country's consumption will also be lower this year. This excludes the possibility of the Brazilian industry turn to the US. According to Abiove, the exact amount imported will depend on how high soybeans prices will be in the second semester. "The lower price may enable imports. But China is very firm on the demand side", says Fabio Trigueirinho, Abiove’s executive secretary o.
After facing one of the biggest drought losses in recent history and dealing with tightening inventories, Brazil is preparing to starts a season that promises the largest soybean crop of all times in 2012/12. The first estimates indicate that the planted area can reach the 26 million hectares mark first time ever. That would mean that, with ideal weather throughout the season, the country could harvest up to 80 million tons of soybean nest year, 15% more than in 2012.
"I think soybeans will at least recover the ground that was lost to corn last year," says Flavio Franca Junior, an analyst with Safras & Mercado in Porto Alegre. Facing higher international corn prices during the time of planting decision, Brazilian farmers significantly increased corn acreage last year. Planted area was up 10% in the summer and 30% in the winter (safrinha corn). Together, the two corn crops occupied 15.7 million hectares. Soybeans acreage, on the other hand, grew only 4.7% in 2012, reaching 25.1 million hectares. Because of that, total corn production almost surpassed the soybean crop in 2011/12. Total corn production reached 66 million tons, compared to 66.95 million tons of soybeans. The previous year, the soybeans crop was almost 10 million tons than above corn production.
Written by Cassiano Ribeiro