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Brazil soy farmers facing worst crisis

SAO PAULO: Soybean farmers who two years ago earned stellar profits and became a source of national pride for putting Brazil on track to become the world’s top soy grower are facing their worst crisis in 40 years, and it could get even worse.

They are suffering from a strong local currency that hurts export revenues and soaring operating costs for fuel, fertilizer and freight. Warehouses brimming with bumper crops could depress global soy prices in the years to come.

Brazil’s soy sector appears to be in for contraction if current market conditions persist, Steve Geld, processing director at Archer Daniels Midland Co’s local division, told grains industry leaders at an agribusiness seminar on Friday.

World soy stocks or the amount left unused of about 58.8 million tonnes are extremely high compared with consumption of 211.6 million and may take several years to return to more traditional levels, after record or near-record harvest in the United States, Brazil and Argentina, he said.

Geld added that for now, fund participation in the commodities markets, doubts over the size of Brazil’s crop and weather leading into the US planting season have helped to support prices at current levels.

Andre Pessoa, chief analyst at Agroconsult, who completed a three-week tour of the soy belt in March, said he thought nearly all production in Mato Grosso state and parts of other states was now operating at a loss due to the extra costs of spraying for Asian rust fungus.

The Brazilian real, which most analysts and producers blame for the current crisis in Brazil’s grains sector, is at five-year highs and has appreciated more than 35 percent against the dollar in the past two years.

This severely diminishes local producers’ opportunity to offset their increased operating costs with better earnings in local currency terms by exporting their soybeans. Brazil exports about 70-75 percent of its soy. “Brazil will not expand its soy production for the next five years under current conditions,” Geld said.

The world’s No 2 soybean grower was expected to overtake the United States this year or next as the leading producer and exporter but now analysts have pushed the US abdication of leadership back until 2011 or later.

Hundreds of producers who are on the brink of bankruptcy are demanding more government aid. They are protesting by blocking roads in Mato Grosso state, which lead to main ports in the Amazon and in the southeast. reuters

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