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May 4, 2012

Rationing Necessary in Brazil to Avoid Running Out of Soybeans

The 2011/12 Brazilian soybean crop is approximately 80% sold already, which is 20% more than what was sold last year at this time when the country produced a record 75 million tons of soybeans. Sales have accelerated this year because of record prices, strong export demand, a weakened Brazilian currency, and a much smaller soybean crop than originally expected. There are approximately 13 million tons of soybeans yet to sell in Brazil and the 2012/13 crop will not be available for another eight more months. This is leading to a concern in Brazil if there will be enough soybeans left in the country for the domestic crushers to make it until the next crop becomes available in January 2013.

The strong export demand and generally early harvest of the soybeans is leading to a rapid export pace. For the first four months of 2012, soybean exports are running at 11.24 million tons which is 3 million tons more than the first four months of 2011. This is leading to a rapid drawdown of already diminished soybean stocks. In the state of Parana, there are only approximately 3 million tons of soybeans left to sell and in Rio Grande do Sul; it is even tighter with only 1.5 million tons left to sell.

The Brazilian crushers are worried about running out of soybeans and they have already started to reduce their crush. According to the Brazilian Association of Vegetable Oil Industries (Abiove), the industry crushed 28.9 million tons between February of 2011 and January of 2012. During the same period the previous year, they crushed 35.7 million tons.

The soybean stocks in Brazil need to start being rationed (both the crush and exports) in order to avoid running out of soybeans before the next harvest can begin. In their April estimate, Conab estimated that the soybean carryover stocks will be 1.1 million tons, but many analysts feel it will be closer to the 2008/09 carryover of 0.6 million tons or even lower. Safras e Mercado estimates that the stocks will be as low as 0.42 million tons or 80% less than the 2.2 million tons at the start of the growing season.

To complicate the situation even more is the fact that the soybean stock situation in neighboring Argentina and Paraguay may be even worse than in Brazil. The Argentine soybean production continues to decline on nearly a weekly basis due to late season dryness in northern Argentina and cold weather and patchy frosts in southern Argentina.