1/31/05 Oilmandi INDIA - The Asian soybean rust fungus is expected to playhavoc in the coming months. The U.S. crop, to be harvested in November, isalready affected and this is likely to drop the global output for thesoybean year 2005-06 (July-June), traders said Saturday.

"The U.S. crop to be harvested in November 2005 is affected. High use ofpesticides would be required, thereby increasing the overall productioncosts. This is likely to impact the production figures also," said T.Gnansekar, an independent commodity analyst.

The Asian rust fungus is yield-snatching and Brazilian farmers have beenfighting it over the past three consecutive years. To fight this fungus,pesticides need to be sprayed before the sowing is initiated.

Brazil and Argentina were fighting limited pesticides availability andever-increasing production costs for the soybean crop. While this may notbe tough for the U.S. to handle, it is not likely to prevent loss ofyield.

According to the U.S. Department of Agriculture's Economic ResearchService, the net economic losses from an outbreak of Asian rust in theU.S. would range from $640 million to $1.3 billion for the first year.Analysts feel that around 1 million acres of soybean cultivated region inthe southern U.S. may even be switched over to cotton because of theexpense.

But it is still early to predict the extent of U.S. yield-loss which willbecome clear by February-end. March 2005 bumper yield from Brazil andArgentina is expected to be around 60-64 million bushels and 35-38 bushelsrespectively.

"The extent of the Latin American crop affected, be it because of fungusor weather conditions, will affect the carryover stock. Moreover, China isa growing market for soybean," Miteshbhai Saiya, a Mumbai-based tradersaid.

At present, the domestic and overseas markets are bearish. Friday, at theChicago Board of Trade, March soybean settled 1.6 cents lower at $5.14 abushel compared to Thursday.

This was following Friday's Buenos Aires-based consulting firm Agripac'sforecast of a cut in Argentina's 2004-05 soybean crop by 1 million tonnesfollowing dry weather.

At Indore's National Board of Trade, the market closed steadier Saturday.February soyoil closed at 357.10 rupees per 10 kilogram, up 2.7 rupeesfrom Friday. March soyoil futures closed at 352.80 rupees per 10 kilogram,up 2.80.

Analysts and traders are expecting prices at CBOT to see a short term risein case the Asian rust or unwanted rains affect yield of the bumper LatinAmerican crop. However while the expected bumper harvest may dull themarket sentiments, the 2006 U.S. crop is likely to be affected.

"Thus, a long-term position would be better than a short-term one,"Gnansekar said.

While India's next soybean crop is not under the threat of this fungus,the global scenario may possibly open new opportunities for domesticexporters.