29/1104 KANSAS CITY (Dow Jones)--The Brazilian government's firstofficial soybean production estimate for the 2004/05 crop year is 60.8million tons, a 22% increase from last year's crop, according to anattache report posted Friday on the U.S. Department of Agriculture'sForeign Agricultural Services Web site.Ministry of Agriculture in Brazil releases its first projections for2004/05The Brazilian government's first official soybean production estimatefor the 2004/05 crop year is 60.8 million tons, a 22% increase from lastyear's crop.According to Agriculture Minister Rodrigues, this increase inproduction is expected despite less growth than anticipated in plantedarea. CONAB (USDA's ERS and CCC equivalent in Brazil) is projecting aplanted area of between 22.0 and 22.4 million hectares, an increase ofapproximately 1 million hectares or a about a 5% increase over last year'sarea.The increase reflects producers' anticipation of lower revenues in2005. Increased costs of production, pressured by high prices forpetroleum and steel, and a drop in international commodity prices arefactors that will reduce planting intentions in Brazil.Decreased fertilizer use also had an impact and made farmers moresusceptible to climate variations. CONAB reports that farmers are facedwith irregular rain patterns and in many areas, a lack of rain in generalas farmers begin spring planting. Water reserves in the South are alsobelow normal levels.Commenting on Brazil's storage and transportation problems, theMinister said that the Brazilian government will invest 62 million Reais(US$ 22.1 million) in infrastructure improvements. The GOB anticipatesthat this investment will generate $1 Billion of additional commodityexports.

Current FactorsSoybean rust is continuing to catch Brazilian farmers by surprise, butthe impact of rust on the current crop is unknown at this time. Thisyear's crop faces a 20% increase in production costs over last yearbecause of rising input costs, and price projections that are 30% lowerthan last year. Weather is the third main variable and potentialaggravation and precipitation in most areas is lower than anticipated.With tighter profitmargins, farmers are especially careful in purchasing inputs. Some sourcesare reporting lower than average fertilizer and chemical sales, a signthat farmers may again skimp on one or the other, which will undoubtedlyaffect yields. Last year, farmers lost 4.6 million tons to rust, theequivalent of $1.2 billion worth of soybeans and a total of $2.2 billionincluding farmer costs. This year, the cost of fungicide is estimated at$60-$70 per hectare. It is possible that farmers will choose to gamble andnot buy fungicide (or less than is recommended) rather than using lessfertilizer. One influencing factor is that chemicals, unlike fertilizerand other inputs, cannot bereturned if unused.Nonetheless, in the center-west, where beans were planted less than amonth before the release of this report, rust was already being identifiedin irrigated soybean areas, and farmers are reportedly ready to applyfungicide. The center-west was the hardest-hit area with the rust epidemiclast year. In the state of Sao Paulo, rather than rotating with adifferent crop, many producers planted second-crop soybeans, which hasreportedly allowed the rust to survive. On Nov. 18, Embrapa, the BrazilianAg research service, announced that Asian rust was found in the state ofMaranhao, in the southernmunicipality of Balsas. Maranhao is the fifth state where Asian Rust hasbeen officially detected this crop season. Other states include MatoGrosso, Parana, Rio Grande do Sul and Goias.

ExportsDecreasing internal and external prices, lower crushing margins, andweak international demand caused Brazilian exports to fall in October.Total Brazilian exports of the soy complex totaled $570 million, down 36%from October of 2003. Export growth began to slow in April, when numerousshipments of soybeans were rejected by China due to fungicidecontamination, which Brazilian producers argued was an attempt to get outof the contracts. At that point, farmers began to lose confidence thatthey would be paid for their commodity sent to China, and soon after,prices that were at $10 a bushel dropped to $5. Exports to China,Brazil's largest market, have dropped 21% to $5.9 billion in the past 12months. The fall in exports to China is an about-face from previous years,where over the period from 1999-2003 the value of Brazil's exports toChina jumped from 620 thousand tons to 6.1 million tons.Shipping problems in Brazil continue to escalate. According toindustry sources, there are fewer and fewer ships available, trucking ismore expensive, and there are new regulations in the port of Paranagua.Charges for demurrage have increased from $10,000 to $40,000 a day.Overtime has been temporarily suspended for port workers and port premiumsare in jeopardy for 2005.Appreciation of the Brazilian currency (currently at R$2.80 to thedollar) is another concern for 2004/05 exports. Some industry sourcesquestion if Brazilian soy producers can maintain profit margins with thecombination of current international soy prices and the current exchangerate. Producers claim they need at last R$ 3.0 to the US dollar to remaincompetitive at current prices.

CrushingAlthough crushing levels are at below-average levels, the recenttemporary closings of crushing facilities, including those owned byCargill, ADM, and some producer-owned cooperatives, are considered normalat this time of year because of maintenance schedules. Also, crushingmargins are down as a result of low prices. The majority of farmersstopped selling beans as prices dropped, and at least 15% of the harvest,equaling about 7 million tons, is now left in the hands of the producers.With a saturated international market due to the large U.S. and Argentineharvests, and another record harvest expected in Brazil, producers mustalso shoulder storage expenses for their unsold product. With planting infull swing, they also must sell to generate cash for planting expenses andinputs. Due to the sheer volume on the market, the crush in Brazil forcrop year 2004/05 is expected to be up 5-10%.

Biotech BeansBiotech soybeans will make up 20% of the total 2004/05 soybeanharvest, according to CONAB. They are expecting 12 million metric tons ofbiotech soybeans, which is a 9.8% increase over last year's transgeniccrop.Provisional Measure 223 (MP 223) allows for the legal planting andmarketing of biotech soybeans for those farmers who signed a statement ofresponsibility (see BR4626). However, in Parana, Brazil's second largestsoybean producing state, the governor's office decided that the stateshould be free of biotech soybeans, regardless of MP 223. To enforce theirpoint, authorities there have been intercepting truckloads of soybeanstraveling through Mato Grosso on their way to Parana. In an attempt toinfluencefarmers, the governor aired testimonies of U.S. and Canadian farmers whoallegedly regretted planting biotech soybeans on state television.With the temporary legalization of planting biotech soybean seed,Monsanto will continue to assess royalties on roundup ready soybeans basedon the system negotiated with farmers in Rio Grande do Sul and SantaCatarina. Soybean growers may declare at the elevator that the beans areroundup ready and pay a fee of 20 Reais, or about US $7 per metric ton(last year, Monsanto offered a rebate of 10 Reais, or about US $3.50 permetric ton to implement the plan). If the grower claims that his loadcontains conventional soybeans, the load is tested on site using a lateralflow strip test. If the test detects the transgenic trait, the grower paysthe fee plus a penalty. Ninety-eight percent of grain handlers (elevators,processors, crushers and growerco-ops) in the southern states of Brazil are under contract with Monsantoto collect royalties for the technology.