9/20/2004 Agra Europe - A surprisingly conservative assessment ofBrazilian 2005 soyabean production prospects gave added zest to thebullish, weather-driven Chicago market this week. However, the recovery insoyabean and product prices from recent lows was partly checked by markettalk that demand, especially from China, could be over-rated too.

USDA's recent forecast of a massive 43mt rise in world oilseed supplies in2004/05 has been one of the main factors restraining the long term priceoutlook for the complex. Almost 80% of the rise has been pinned onincreased soyabean production, of which about 40% is down to an expected13.4mt rise (25%) in Brazilian output to a new record 66mt.

However, Brazilian oilseed industry body ABIOVE is less optimistic aboutnext year's production, putting it at only 61.5mt. Though still about 11mtbetter than this year's disappointing crop, it would produce only 25mt ofmeal and 6.2mt of oil compared with USDA's forecasts of 28.8mt and almost7mt respectively.

Bean exports put at 23mt

ABIOVE also sees Brazil's exports at 23mt of beans (versus USDA's 23.5mt),16.3mt of meal (18.6mt) and 3.05mt of oil (3.44mt). ABIOVE also hasBrazil's 2004 production 2mt lower than USDA at 50.6mt while the BrazilianCensus Bureau has the crop at only 49.2mt.

ABIOVE's estimates, not the only recent origin forecasts below the highUSDA figures, echo earlier reports that Brazilian fertiliser sales forcoming crops were up by far less than the expected 10% rise in thisautumn's soya planted area.

But adding another twist, Brazilian analysts Safras e Mercado werereported to be forecasting 2004/5 area at 23m ha, 500 000 less than USDA,attributing the slower rate of growth to lower farmgate profits. Safrasalso said producers might reduce spending on inputs, possibly exposingcrops more to rust damage. Even so, Safras reportedly still saw potentialfor a 66.6mt crop.

US cold weather fears persist

US soyabean futures continued to draw strength from concerns about theimpact of a cold summer and new frost threats to domestic production. Evenwithout this threat, traders said recent unusual cold snaps could hamperdevelopment of late crops in the northern belt. Perhaps 1m-3mt ofsoyabeans could be at risk of missing optimum yields, if not outright croploss.

However, the equation still challenging analysts this week was the extentto which unexpectedly high yields from the earlier planted southern statesmight make up for northern losses to keep USDA's 78.3mt forecast more orless intact. A survey carried out in the Aug 16-27 period by US traderAllendale, for example, was looking for a near 80mt crop, based on yieldsof almost 40bu/acre versus USDA's 39.1bu/acre.

Meanwhile, although early harvested beans are being rushed to supposedlystarved processors, physical soyabean prices have been under pressure froma reported slackening in both export and domestic demand. With marginsrecently falling quite sharply, US crushers were believed to be trying toeke out stock until the harvest gets fully into gear, putting morepressure on soyabean prices.

How much will China buy?

Doubts have also resurfaced over the extent of new season demand fromChina, which USDA has forecast at a record 23mt. However, some noted thatthis was also the figure that USDA had earlier predicted for 2003/04, forwhich actual intake ended up at less than 17mt.

Also, in the past week, it was reported that up to 2.5mt of South Americansoyabeans were bottled up in Chinese port warehouses, following contractdefaults earlier in the year. Trade sources said the Chinese buyers weretrying to renegotiate terms booked when prices were soaring. With thesesupplies moving only slowly to market, there were fears that large-scaleorders could be minimised for some time, despite some recent moderateChinese business.

Chinese output seen rising

Chinese oilseed output is predicted to rise from 51.5mt to 59mt thisseason, led by rises of 3mt in cottonseed, 2.4mt in groundnut and 1.5mt ofsoyabeans. However, with domestic vegetable oil consumption rising by1.64mt, USDA forecasts large oilseed imports to supplement local supplies.USDA also expects China to import a record 7mt of vegetable oils, mainlypalm (3.86mt) and soya (2.4mt).

Concern was also expressed concern about reports that Japanese and SouthKorean soyabean importers were expecting to import less because of lowermeal consumption. Japan has been forecast to import 5mt and Korea 1.55mtin 2004/05. Traders also noted reports that world soya demand is switchingfrom US to South American beans, stocks of which have ended up higher thanexpected for the time of year due to the slowdown in the region's sales toChina.