MARKET DEVELOPMENT
29-09-2004
Brazil May See Large Soy Carryover Stocks - Indust
28/09/04 - SAO PAULO (Dow Jones)--With Brazilian soybean farmers refusingto sell in a slumping market and companies suspending crushing on negativemargins, Brazil may carry a large portion of its 2003-04 crop into nextseason, a industry leader said.Brazilian soybean output is expected to jump anything from 20% to 30%this year and, as a result, farmers may be forced to sell heavily at thestart of next year, he said."Unless something gives, producers could be caught in a difficultposition from March," said Cesar Borges de Sousa, vice president of theBrazilian Vegetable Oil Industries Association, or Abiove.Brazilian farmers have been selling very little soy over the last fewmonths. As a result, they still have 77% of their 51 million metric ton2003- 04 crop to sell, according to local agricultural consultantsCeleres. Farmers had already sold 95% of their crop at this stage over thepast five years.Producers held on to stocks in the belief that prices would react inthe interharvest season, as they have done in the last three years.But after a couple of rain-hit crops, the U.S. appears to have abumper crop this year and international prices have slid continuouslysince the start of September."Farmers are still holding on. They may be advised to rethink the plansoon though," said Borges.Producers still hold around 11.5 million tons of soybeans, accordingto Celeres, and have only four months till the arrival of the next crop.But it is tough to sell as negative margins have caused demand fromthe local crushers to slump. A number of major soymeal and soymealproducers, including Bunge and Cargill, have suspended crushing atBrazilian factories in recent weeks."In certain regions and in certain cases, it costs less to stop thefactory than to continue crushing. It all depends on their order books,"said Borges.As a result, industry soybean stocks are unlikely to have fallen fromthe 5.7 million tons registered on Aug. 31.Meanwhile, with a bumper U.S. crop in prospect, export demand has alsobeen weak.To make matters worse, farmers have also sold little of the coming2004-05 crop, which could intensify producer problems with stocks nextyear.Brazilian producers have sold just 9% of their forecast64.2-million-ton harvest compared with 39% at the same point last year,according to Celeres.Producers see no reason to commit their crop at current low prices,while buyers are cautious after being burned on a sharp upswing in priceslate last year.Forward sales normally pay for farmers' immediate crop and harvestexpenses. This year, farmers are going to have to sell more directly afterharvesting when prices are at their lowest, to cover costs."It's a shame as the forward sale system worked covering both thefarmer's and the industries' risks," said Borges.Crushers and exporters are also wary of offering futures contractsafter farmers broke deals last season to take advantage of a price spikelate last year. Producers invoked a clause in civil law that nullifies acontract if it favors one party too greatly. A number of crushers andfarmers remain locked in court over the issue, said Borges.Should Brazilian farmers lose large portions of their crop to droughtand the dreaded Asian rust fungus this season, stocks won't be an issueand prices should rise."But that could cause farmers to break forward contracts again," saidBorges.
