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July 6, 2012

Record Soy Prices in Brazil Encourage Record 2012/13 Soy Acreage

The combination of tight domestic supplies, a weakening currency, and increasing soybean prices are resulting in record domestic soybean prices in Brazil. These high prices are coming at a very opportune time as Brazilian farmers prepare for their 2012/13 growing season.

At the Port of Paranagua last week, soybeans were being contracted for R$ 72 per sack which is up 47% in 2012 and 55% more than last year at this time. Ithe state of Rio Grande do Sul, farmers are currently forward contracting their 2012/13 production at R$ 61 per sack, which is a record high price.

Soybean exports out of Brazil in 2012 were front-loaded and now domestic supplies are becoming very tight. The 2011/12 Brazilian soybean crop was 12% smaller than last year, but the exports for the first five months of the year were 36% greater than last year. More than 90% of the 2011/12 Brazilian soybean crop has already been sold and in Mato Grosso, which is the largest soybean producing state, less than 2% of the crop remains to be sold.

As exporters and processors compete for a dwindling supply of soybeans, they are paying a premium of US$ 3 per sack in order to secure the few remaining soybeans. Normally, processors in Brazil shut down operations in November or December while they await new crop soybeans in January. Due to the extremely tight supplies this year, processors have already imported approximately 100,000 tons of soybeans from Paraguay and Argentina, which is more than twice the amount of imports estimated by the government for all of 2012. It is expected that they will import even more to avoid shutting down operation as early as August.

As a result of the record soybean prices, Brazilian farmers are expected to plant a new record large soybean acreage in 2012/13. I am anticipating that Brazilian farmers will reduce their full-season corn acreage in 2012/13 in favor of increased soybean acreage. The Brazilian soybean acreage may increase 6% with a total production estimated at 80 million tons.

During the 2011/12 growing season, Brazil planted 25.0 million hectares of soybeans, which was a 3.5% increase over the previous year. In 2012/13 it is estimated that Brazil will increase the soybean acreage by 6% to 26.5 million hectares and if the crop yields 3,020 kg/ha (43.8 bu/ac), then the 2012/13 Brazilian soybean crop would be 80 million tons compared to last year's 65.5 million tons.

Achieving 80 million tons of soybean production in 2012/13 will depend on the weather of course. We are currently in a neutral position between La Nina and a potential El Nino. The best scenario for South American soybean farmers would be if we transition into an El Nino by September or October because that usually results in good planting conditions in southern Brazil and Argentina. If we don't transition into El Nino until November or December (or if an El Nino doesn't develop at all), then the planting conditions in South America may be less than ideal.

Farmers in central Brazil are allowed to start planting their soybeans on September 15th, which is the conclusion of the 90-day soybean free period. They will anxious to plant as early as possible to give them time for a second crop of corn after the soybeans are harvested. In southern Brazil, they will start planting soybeans in October.