|
Nov 25, 2007
The US dollar has seen a trading range of 2.20:1 to 1.70:1 against
the Brazil Real during 2007. The global financial markets continue
to recognize the Brazil Real and economy as being stable for
investment. This has enticed billions of dollars and euros to flow
into Brazil the previous 12 months. With the strong Real anyone that
needs to export goods out of Brazil is feeling the pain. Brazil
soybean producers continue to be frustrated as they buy crop inputs
based in dollars and then need to repay their loans in Reals.
The Chicago Board of Trade is trying to find a price equilibrium
that will encourage acreage expansion in South America for soybeans.
The lower the US dollar trades, forces soybean futures higher in
order to compensate the Brazilian producer to stick with soybeans.
Corn, cotton and even rice are all viable crop alternatives in the
interior of Brazil. The Soybean area will increase about 5%
this crop year to about 22.3 million hectares. If we use the
national average yield of 2,700 kilos per Ha or 40 bushel per acre,
Brazil will produce a 60 million ton soybean crop. Brazil has
applied record amounts of fertilizer this year. Many producers are
catching up from skimping on fertilizer rates during the agriculture
crisis the past 3 years. In many areas I think we will see above
average soybean productivity per hectare.
Brazil grows non-GMO corn. The corn market has been hot the
past few months. Given the production problems in Europe this
past season and The EU’s reluctance to use GMO corn in their diets
have given the Brazilian corn market a boost into the stratosphere.
Spot corn prices have traded as high as 8 dollars per bushel.
The 2nd crop corn plantings could be higher than most analysts
anticipate. Given the late start to soybean planting due to
dryness, the 2nd crop will be at greater risk in 2008. I still
think Brazil will produce 55mmt + of corn in this crop cycle.
Sugarcane area will plateau
at just below 7 million hectares nationally. During this past
seasons harvest we actually had a glut of Alcohol/Ethanol in Brazil.
Alcohol futures dropped to about 50 cents a liter to get rid of it.
This is about 1 dollar per gallon. The price
at the pump was higher because of taxes on petroleum products.
However the price differential between alcohol and gasoline with 25%
alcohol blend in it is substantial.
Everyone is burning straight alcohol in Brazil. States such as
Florida are debating their mandate for ethanol in USA. From
what I understand Florida is not fond of ethanol made from corn.
Florida is looking at Brazil for it future ethanol needs. If
Florida decides to go with sugarcane for its ethanol feedstock, then
Brazil will have the incentive to continue to expand the sugarcane
area. If alcohol prices stay at these levels going into the
2008 harvest of sugarcane, we will start to hear about financial
problems from newly built sugarcane mills.
|
