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South America rising

Agriculture.com Staff 09/21/2009 @ 9:13am

With favorable weather and lower production costs, Brazil, Argentina, Paraguay and Bolivia want to gain back the ground lost last season.

Due to drought, South American grain production shrank 1.3 billion bushels (50 million metric tons) in the 2008/09 cycle. The reduction had a negative impact on both soybean and corn world production, tightening global stocks even more.

Led by Brazil, South American producing-countries now prepare their big come back to the global grain market. Brazilian soybean crop alone can reach up to 1.74 billion bushels (64 million tons) this year. The best performance so far was in 2007/08, when Brazil harvested 1.63 billion bushels (60 million tons) of soybeans. Last year, production was affected by severe drought, and fell to 1.55 billion bushels. Brazilian hopes for a bigger crop this year consider not only recovery of average yields after drought, but also take into account a larger planted area.

Brazilian soybean area is expected to increase 3.7 million acres (1.5 million hectares) in 2009/10, to 58 million acres (23.5 million hectares). Corn planted area, on the other hand, should drop as much as 20% in the country, to 27.7 million acres. Considering the first (summer) and second (winter) crop, Brazil can harvest up to 1.27 billion bushels of corn in 2009/10. The biggest crop so far was in 2007/08, when Brazilian farmers harvested 1.49 billion bushels of corn.

Being more profitable, soybean will likely "steal" acres from corn not only in Brazil, but also in Argentina, Paraguay and Bolivia. In2009/10, soybean production in South America may surpass 3.27 billion bushels again, says Eugenio Stefanelo, a technician with the Brazillian National Commodities Supply Corp., or Conab. Last time that happened was 2 years ago. Last season South American soybean crop stood at 2.59 billion bushels. In Stefanelo's opinion, bigger crops in these four countries will help increase world grain stocks, which are in pretty low levels right now. He reminds that Argentina alone lost 463 million bushels of soybeans last year, and Brazil lost 82 million bushels (3 million tons) to drought.

In Brazil, government support will also help boost grain production next season, adds Stefanelo. For the 2009/2010 cycle, the Brazilian Ministry of Agriculture (Mapa) will provide to farmers over U.S.$ 50 billion (R$ 108 billion) in loans, the largest amount ever. This money will be used to finance planting, harvest and commercialization of the crops at lower interest rates. Since field work stars in September in Brazil, federal loans are already available for farmers.

Minister of Agriculture Reinhold Stephanes, is optimistic about the next crop. He thinks the conditions for agriculture are much better than the forecasts made last year. "Brazil, the largest exporter of agricultural goods, will recover in the 2009/2010 Crop its production capacity and increase the offer of grains in the domestic and international markets."

Robson Mafioletti, a technician with the Organization of Cooperatives of the State of Parana (Ocepar), says that the possibility of a big soybean crop in Brazil "is good for the domestic market, which will have plenty of grains available, but bad for the global market because it can lead to lower international prices."

Unfortunately, he says, projected prices for harvest in Brazil are not so good. Not only because South America should produce more grains this year, but also because corn and soybean crops are in good conditions in the United States.

Factoring all that, Brazilian farmers can expect soybean prices between US$ 8.5 and U.S.$ 10 a bushel and corn prices around U.S.$ 3.2 to U.S.$ 4.5 a bushel, according to Stefanelo, from Conab.

Those prices would be enough to cover production costs, which have lowered when compared to a year ago. A bag (60 kilograms) of soybean will cost Brazilian farmers around U.S.$ 13 this year, versus U.S.$ 14 last season. The decrease was bigger in corn, which has its total cost per bag reduced from U.S.$ 9 last cycle to U.S.$ 7.5 this year. The values include all inputs, as well as machinery depreciation. In both cases, cost reduction is mainly due to lower fertilizer prices.

Between soybeans, corn and other summer crops, Brazil is expected to at least maintain in 2009/10 the same planted area as last season, of almost 118 billion acres (47.7 million hectares). Together, soybeans and corn account for 75% of that extension, and up to 80% of all the grains produced by the country annually. Considering all crops, Brazilian agriculture production is expected to reach as much as 3.8 billion bushels 140 million tons) in 2009/10, up from 3.6 billion bushels (134 million tons) last season. Brazilian farmers will begin the summer field work in September, right after they finish harvesting their winter corn crop, in August. Winter wheat harvest is concluded in November in the country.

With favorable weather and lower production costs, Brazil, Argentina, Paraguay and Bolivia want to gain back the ground lost last season.

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