Voluntary Report - public distribution

**Date:** 12/22/2005

**GAIN Report Number:** BR5633

BR4629

**Brazil**

###### Oilseeds and Products

**Post-Planting Update**

**2005**

**Approved by:**

![](media/image1.wmf)Alan D. Hrapsky, Agricultural Counselor

U.S. Embassy

**Prepared by:**

Elizabeth Mello, Agricultural Attaché

**Report Highlights:**

With the soybean crop essentially planted and rust seemingly under
control, industry eyes are focused on the weather, the main factor with
potential to block a record harvest in Brazil. Profit margins, however,
are expected to be low as a result of the strong Brazilian Real, which
is making inputs more costly and exports less lucrative. Post's forecast
remains at 61 MMT on 21.9 million hectares, representing an area
reduction of 4% over 2004/05.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Brasilia \[BR1\]

\[BR\]

**PS&D**

+-----------------+-------+-------+-------+-------+-------+-------+
| **Brazil**      |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **Oilseed,      |       |       |       |       |       |       |
| Soybean         |       |       |       |       |       |       |
| (Local)**       |       |       |       |       |       |       |
|                 |       |       |       |       |       |       |
| **1000 HA and   |       |       |       |       |       |       |
| 1000 Tons**     |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
|                 | **2   | *     | **2   | **    | **2   | **    |
|                 | 003** | *Revi | 004** | Estim | 005** | Forec |
|                 |       | sed** |       | ate** |       | ast** |
+-----------------+-------+-------+-------+-------+-------+-------+
|                 | *     | *     | *     | *     | *     | *     |
|                 | *USDA | *Post | *USDA | *Post | *USDA | *Post |
|                 | Off   | Estim | Off   | Estim | Off   | Estim |
|                 | icial | ate** | icial | ate** | icial | ate** |
|                 | \[Ol  |       | \[Ol  |       | \[Ol  |       |
|                 | d\]** | *     | d\]** | *     | d\]** | *     |
|                 |       | *\[Ne |       | *\[Ne |       | *\[Ne |
|                 |       | w\]** |       | w\]** |       | w\]** |
+-----------------+-------+-------+-------+-------+-------+-------+
| **Market Year   |       | 02    |       | 02    |       | 12    |
| Begin**         |       | /2004 |       | /2005 |       | /2006 |
+-----------------+-------+-------+-------+-------+-------+-------+
| **Area          | 21475 | 21436 | 22800 | 22800 | 23000 | 21900 |
| Planted**       |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **Area          | 21475 | 21400 | 22800 | 22800 | 23000 | 21900 |
| Harvested**     |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **Beginning     | 3129  | 3090  | 2086  | 2219  | 1058  | 1099  |
| Stocks**        |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **Production**  | 50500 | 50500 | 51000 | 51000 | 62000 | 61000 |
+-----------------+-------+-------+-------+-------+-------+-------+
| **MY Imports**  | 350   | 350   | 470   | 400   | 200   | 200   |
+-----------------+-------+-------+-------+-------+-------+-------+
| **MY Imp. from  | 0     | 0     | 0     | 0     | 0     | 0     |
| U.S.**          |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **MY Imp. from  | 0     | 0     | 0     | 0     | 0     | 0     |
| the EC**        |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **TOTAL         | 53979 | 53940 | 53556 | 53619 | 63258 | 62299 |
| SUPPLY**        |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **MY Exports**  | 19571 | 19571 | 19542 | 19500 | 22936 | 24000 |
+-----------------+-------+-------+-------+-------+-------+-------+
| **MY Exp. to    | 10200 | 10720 | 10700 | 11000 | 0     | 13000 |
| the EC**        |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **Crush Dom.    | 29172 | 29000 | 29634 | 29500 | 32309 | 32500 |
| Consumption**   |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **Food Use Dom. | 0     | 0     | 0     | 700   | 0     | 750   |
| Consump.**      |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **              | 3150  | 3150  | 3322  | 2820  | 3575  | 3000  |
| Feed,Seed,Waste |       |       |       |       |       |       |
| Dm.Cn.**        |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **TOTAL Dom.    | 32322 | 32150 | 32956 | 33020 | 35884 | 36250 |
| Consumption**   |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **Ending        | 2086  | 2219  | 1058  | 1099  | 4438  | 2049  |
| Stocks**        |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+
| **TOTAL         | 53979 | 53940 | 53556 | 53619 | 63258 | 62299 |
| DISTRIBUTION**  |       |       |       |       |       |       |
+-----------------+-------+-------+-------+-------+-------+-------+

# Production

Soybean production remains forecast at 61 MMT with an expected yield of
2.8 tons per hectare. The 2005/06 Soybean crop is nearly all planted,
with the exception of Santa Catarina and Rio Grande do Sul, where dry
weather has been a problem. After a unfortunate overall crop year in
2004/05 caused by a drought in southern Brazil, overall yields are
expected to be significantly higher due to the recuperation of yields in
the South.

Items positively affecting yields are:

-   Area out of production this year is marginal land

-   South expected to bounce back from drought

-   Inexpert farmers getting out

-   Weather so far favorable in nearly all areas

Negative factors include:

-   Producers frugal use of fertilizer and lime

-   No cash on hand for multiple fungicide applications to combat
    soybean rust

If yields are in question, it is due to the fact that there is little
credit available to the sector, which is evidently impacting input use.
The primary sources of credit, such as fertilizer, chemical, and seed
companies, as well as multinationals, were more conservative this year
in extending financial support to farmers. Many producers used the
simple strategy of holding on to beans until expenses emerged at
planting time in November, instead of taking advantage of higher soybean
prices in May and July. They then faced a rough combination of lower
soybean prices and a Real valuing a minute 2.1 to the dollar. It appears
that the farmers applying insufficient fertilizers and chemicals as a
result of this mismanagement are small and medium-sized producers with
less access to market information and/or capital. It has also been noted
that farmers are tending toward cheaper products for rust control.

There is, however, some disagreement among sources regarding fertilizer
sales in 2005. Brazilian research entity CONAB reported a drop of 17.7%
over last year's sales, while local ag consultant FNP Institute refuted
their estimate, claiming sales would close with a 4.4% increase. An
independent fertilizer company in Mato Grosso reported to Post a drop in
fertilizer sales by 10 to 15 percent from last crop season.

# Area

Following seven years of strong advancement in soybean area, Post is
estimating a 4% drop in area dedicated to soybeans in 2005/06.
Considering that soybean area grew at an average rate of 4.7 percent a
year for the last 10 years, this decrease reflects the current state of
affairs in Brazilian agriculture. The lack of credit availability is an
issue in nearly all Brazil's growing regions, and definitely had a role
to play in the decrease in area. The largest reduction should take place
in the state of Mato Grosso; with significant reductions also taking
place in Goias, Paraná, and Rio Grande do Sul, the state in which
drought conditions were worst last crop season. Piaui is the only
soybean state with an estimated increase in area this year.

Questions remain concerning land previously planted with soybeans. Some
land will be left fallow or go to pasture, since it is expected that
land left unplanted this year was primarily marginal land producing
unremarkable yields. Post believes that some acreage in the south will
be turned over to corn, due to higher corn prices and strong demand.

# Strong Real is Causing Sector Woes

To quote Ag Consultants Celeres, the continual strengthening of the Real
vis-à-vis the dollar over the course of the year has done away with the
"radiance" of soybean farming. Brazil's currency appreciated 20 percent
against the dollar in the past twelve months, with transport and
production costs rising. The super-high cost of capital has also dimmed
the appeal of planting soybeans. Although farmers receive subsidized
loan rates, extremely high Brazilian interest rates are greatly
affecting the ag sector.

Fertilizer sales were bad enough to prompt the multinational Bunge to
close seven of its thirty-five plants in Brazil this month. Bunge
claimed their sales to be down 25% as a direct result of the strong
Real. Last year's crop injury from drought, farmer indebtedness, and low
commodity prices were other reasons cited for closing the plants.

# 

# Soybean Rust 2005/06

Eighty-one registered cases of Soybean Rust have been identified by
Brazilian research entity Embrapa, broken down among the following
states: Paraná, 28; São Paulo, 17, Mato Grosso do Sul, 17; Mato Grosso,
13; Minas Gerais, 4; Goiás, 2. Local sources report 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.

####### Harvest Fast Approaching

The 2005/06 soybean harvest in Brazil is expected to begin in late
February. Harvesting will begin in Mato Grosso and Goias, followed by
Mato Grosso do Sul, Sao Paulo, and Paraná. This process will go on until
approximately the first week in June, where area in the North and
Northeast is usually still being harvested.