Brazil Crop Outlook - 1

By Alastair Stewart
DTN South America Correspondent

SAO PAULO, Brazil (DTN) — "If we don’t plant soybeans, what else do we do?"

That’s Pedro Vigolo explaining why he and his neighbors in Sorriso, northern Mato Grosso, will plant the same amount of soy or more in the 2015-16 season. This is despite slumping futures prices in Chicago.

It’s the underlying reason why Brazilian soybean area won’t fall when planting starts in mid-September.

The area is actually likely to rise, by between 2% and 3%, to over 80 million acres this season. That was far from certain until around six weeks ago, but farmers warmed to the idea of planting the oilseed in July when a surge in soybean futures coincided with a devaluation of the Brazilian real.

As a result, farmers in the south of Brazil see fair margins, and farmers in Mato Grosso and the rest of the Cerrado can also now expect to make modest amounts from planting in 2015-16.

"The outlook is much better than many feared. If the weather helps, it will be an OK year," said Laercio Lenz, president of the farmers’ union in Sorriso, Brazil’s biggest grain municipality.

The margin in Sorriso, center-north Mato Grosso, is projected at R$153 per hectare ($17.30 per acre), excluding land costs, in 2015-16, only slightly down from R$169 in 2014-15 but much lower than R$291 in 2013-14, according to data from AgRural, a local farm consultancy.

The main reason the 2015-16 margin now is projected as positive when in May they were expected to be negative is the sharp decline in the Brazilian real against the dollar. The currency has fallen 26% against the greenback in 2015 and dropped 13% in July alone as investors fled Brazil due to general concerns about a slowdown in the Chinese economy, repositioning ahead of a possible U.S. interest rate rise later in the year and concerns about Brazil’s recessionary economy and unstable politics.

This meant that, despite a recent slump in international soybean futures, the Mato Grosso price indicator hit a yearly high of R$60.32 last week, up 6% on last year, according to the Mato Grosso Agricultural Economy Institute (IMEA).

Strong prices combined with a greater availability of credit led to a late surge in demand for inputs.

Fertilizer deliveries rose sharply in July. While distributors say they have sufficient stocks to meet demand, they warn the surge may cause logistical delays in the frontier regions of the north.

But there won’t be significant delays in the supply of seeds and chemicals.

The surge in demand won’t change the fact that farmers will spend less on inputs this year. Deliveries of fertilizers were down 10.5% in the first seven months of the year, with phosphates showing the biggest fall at 13% lower.

Even with a late jump in orders, overall usage on soybeans is expected to fall between 3% and 5%.

"Farmers are being much more sparing with fertilizers, in particular phosphates, this year because they know that they have a reserve from previous years and there will be limited impact on yield potential, assuming normal weather," said Anderson Galvao Gomes, a grains analyst at the Celeres consultancy.

The main reason for the decline is the sharp spike in fertilizer prices caused by the devaluation. Prices for some packages have gone up 60% over the last six months because of this, said Mario Lucio Melo, head agronomist at Coopavel, a leading cooperative in the southern state of Parana.

In the south, soybeans will expand into corn areas, while there will be expansion onto cotton acres in the center west. There won’t be a lot of expansion onto newly converted pasture or cleared land, though, with any growth offset by farmers choosing not to plant marginal lands in the frontiers.

Generally speaking, farmers will not downgrade seed technology, though. Indeed, with the expected expansion in the use of Intacta RR2 beans, the level of technology may actually increase.

The big question is: What will the weather be like?

The El Nino weather phenomenon appears to be extremely strong this season.

That would indicate similar rain patterns to the 2014-15 one, which returned the highest yields in five years, according to Marco Antonio dos Santos, farm meteorologist at the local Somar weather service.

But it does mean spring rains will arrive late in Mato Grosso and other top-producing parts of the Cerrado.

Somar’s long-term projections contain very little rain in Mato Grosso for September and October, which would mean late planting, very similar to 2014-15.

But years of El Nino activity normally bring ample summer rains when they do arrive. As a result, Brazil may have a shot at producing a crop of 100 million metric tons in 2015-16, representing a 5% jump on last season.

Alastair Stewart can be reached at