March 10, 2011
Soy Expansion in Brazil Could be 3 to 5% in 2011/12
When soybean prices reached record levels in 2008, Brazilian soybean farmers were not in a position to take advantage of the situation to expand their operations. At the same time that commodity prices were high, fertilizer and fuel prices were also at record levels. Additionally, Brazilian farmers were carrying high debt loads and they could not get the credit they needed for expansion.
With strong worldwide commodity prices once again, the situation is much more favorable for Brazilian farmers. Their cost of production has actually declined in recent years due the strong Brazilian currency and they are carrying a lighter debt load than before. While credit is still relatively tight, the Brazilian government has initiated a series of subsidized loan programs designed to help farmers purchase the equipment needed to expand their operations.
The Brazilian soybean acreage expanded rapidly in the 1980s and 1990s reaching a peak in 2004 that has been surpassed just this growing season. Between 1999 and 2004, the soybean acreage in Brazil expanded at an astounding rate of 11% per year. A series of internal problems in Brazil and declining commodity prices resulted in a slow decline in soybean acreage in the mid 2000s that has only been reversed during the last two growing seasons. Even though acreage did not increase during much of the 2000s, the total Brazilian soybean production crept higher due to good weather and genetic improvements.
Many in Brazil now think the country is poised for once again a sustained expansion of its number one crop - soybeans. Flavio Franca, an analysts Safras e Mercados, feels that Brazilian soybean acreage could increase 3-5% in 2011/12. Franca also cites the fact that the Chinese demand for soybeans is constantly increasing and that bigger crops in both Brazil and the United States will be needed to satisfy the demand.
Brazil has hundreds of millions of acres that could be brought into row crop production. Included in this total is cerrado land in central and northeastern Brazil as well as millions of acres of degraded pastureland that Brazilian scientist say could be relatively easily be converted to row crops. Throughout Brazil there are currently about four times more acres of pastures than row crops. The U.S. on the other hand has a limited amount of land that could be brought into crop production and it would be difficult for soybeans to take away land from corn production due to the strong demand for corn.
There will be obstacles ahead that could slow the expansion of row crops in Brazil including: stricter environmental regulations, competition from other crops such as cotton, corn, and to a lesser extent sugarcane, and the push in Brazil for agrarian reform. Brazilian farmers are already purchasing seed and fertilizers for the 2011/12 growing season and that trend is expected to accelerate as they sell their soybeans, corn, and cotton for very good prices.