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Record Soybean Crops Seen Coming From South America

The markets might be looking for a bullish factor for corn and soybeans in 2015. However, this bullishness will not come from South America this year. 

The USDA forecast, this week, a record soybean production for Brazil in 2015/2016 at 97 million tons. This is contrary to what many expected.

Also, Brazil's Agriculture and Livestock Minister, Kátia Abreu, announced that the 2015/2016 crop plan will have a total release of R$ 187.7 billion (US$ 60 billion) in funds to finance the season either in cost or investment. This is a jump of 20% compared to the previous year. 

The average farm business loans have the rates increased to 8.5%, while Brazil's Central Bank has a lending rate of 13.25%. This expectation was not as negative than first thought, because Brazil is in a recession that already beats the field. In May, machinery sales plummeted over 20% compared to the same month of 2014.

The Brazilian Soybean Growers Association criticized the plan because the interest rate hike and about US$ 10 billion of the resources would be offered at "free" interest rates. The Association yet advises farmers not to increase their areas or to invest in technology with these new interest rates and annual cost increase of 10%, but yet they still might.

An early survey of Scot, a consultancy based in the state of São Paulo, projects the next soybean crop with a surface jumping from 1.5% to 2.5%. Scot's analyst Rafael Ribeiro explains.

"The profits brought by soybeans dropped in Brazil with higher stocks, but yet this is still the crop which brings the best economic results. With a peak of the dollar value recently, sales jumped and the profits did not fall significantly," Ribeiro tells Agriculture.com. 

In March, month of the final stretch of the harvest in Brazil, the dollar value peaked at R$ 3.30 in Brazil. In August of last year, when inputs were purchased, US$ 1 could purchase R$ 2.26. As of today, US$ 1 is worth R$ 3.11

In the opinion of Ribeiro, corn production will consolidate as second crop with surface expansion in the winter and slightly less acres in the summer. Cotton, another common crop in the Center-west of Brazil, would also have acreage expansion after years of decline.

The Mato Grosso Institute of Agricultural Economics (Imea) projects specifically for the state of Mato Grosso, the country's top producing state, a surface increase for soybean at a rate of 1.82 - the smallest since 2009. According to Imea, the yields this year would not grow because of less investments and the total output in the state. 

Weather-wise, metereologists are saying that the El Niño phenomenon might help corn and soybean crops in Argentina, especially in the top producing provinces, Uruguay, and the state of Rio Grande do Sul, in Brazil.

In neighboring Argentina, the Rosario Board of Trade expects acreage increases for soybeans, even with a production record this year getting close to 60 million tons. On the other hand, corn production would have a decline in the next season.

"The belts are really tight for corn and financing it is expensive. Farmers still willing to plant it are based on rotational needs and to feed animals. In regions close to the ports, the reduction might be smaller. [...] For soybeans, they might want to repeat the good experience of the previous year," Guillermo Rossi, Director of Information and Economic Studies at the Rosario Board of Trade, says in an interview with Agriculture.com.

Farmers in Argentina watch closely the presidential race that will end with Cristina Kirchner leaving power in December. She was known to have a conflictual positioning against farmers and imposed policies of quotas and taxes on grains.

"The race is relatively tight. One of the candidates (opposition Mauricio Macri, current mayor of Buenos Aires) made clear that he will revise agricultural policies, while the incumbent (Daniel Scioli, governor of the Buenos Aires province) has not made public his definitions," affirms Rossi.

In the region, tiny Uruguay is the only exception. According to Blasina & Associates, a consultancy from Montevideo, the surface dedicated to the oilseed can fall up to 20% after having a record output of 3.1 million tons in the summer. The corn area would fall 10%. 

"There is high cost and high proportion of rented lands. The ones who live far away from ports do not have a viable business," explains Eduardo Blasina, owner of Blasina & Associates. 

Wheat

Wheat is a common crop in the states of Rio Grande do Sul and Paraná in Brazil. It is planted in May and the Ministry of Agriculture Crop Plan would affect mostly the plans for 2016. For this year, projections put the Brazilian production at 7.1 million tons. Luiz Pacheco, director of Curitiba consultancy Trigo & Farinhas, said that the crop plan will force a reduction of wheat surface in 2016. For this year, he says that because of excess of domestic production, there will not be import of the cereal from the U.S. in 2015.

"The majority of wheat growers will reduce area in 2016 because the costs increased a lot. But for those who really the math this increases can be compensated by profitability. If the interest rates are compared to the overall economy rates, these rates are still satisfactory," highlights Pacheco. 

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