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Brazil Counting on Another Banner Year in Agriculture in 2008

Soy field in Brazil Prices of soy and corn, the two types of grain that Brazil produces the most, should remain high next year helping to bring more capital into the country. The secretary for Agricultural Policy at the Ministry of Agriculture and Supply, Edilson Guimarães, believes that the two products will continue to be in high demand in the global market in 2008, and that prices will not retreat.

"The increase in prices of commodities that took place in 2007 was a change in level, the prices will not return to the levels of last year, they should remain at their current level," he says.

The high pricing of soy has helped maintain the sector's exports this year. Exports of the soy complex, which stood at 38 million tons between January and November 2006, decreased to 36.9 million tons in the same period of 2007, a reduction of 2.7%. Even so, there was a 22.3% increase in revenues during the first eleven months this year compared with the same period of last year.

Sales rose from US$ 8.8 billion to US$ 10.8 billion. The average price for one ton of soybean exported by Brazil expanded from US$ 226 between November and January 2006 to US$ 281 in the same months this year. The average price for the exported grain in November, though, was even greater: US$ 343.

Soy and corn answer to 90% of Brazilian grain production. Corn does not have such a significant weight in the Brazilian agricultural balance of trade, but foreign sales of the product had a significant growth in 2007. They went up from 3.6 million tons from January to November 2006, to 10 million tons in the same months of 2007, a growth of 176.6%.

As in the case of soy, the high price of corn also made the increase in foreign sales even greater: 307%, from US$ 421 million to US$ 1.7 billion. The price per ton exported rose from US$ 116 to US$ 171. "Europe paid a premium on non-transgenic corn, and this helped increase exports," says Guimarães.

Specialists in the sector believe that 2008, as 2007, will be a good year for soy and corn. "It should be a very good year for soy, corn and also wheat, with balanced demand and supply. There should be a lot of speculation going on in the United States market, because they have low stocks of soy. Therefore, they will have to plant soy and reduce their planted area for corn. That is when the market gets into a delicate situation in these two areas," says economist and analyst at consultancy firm Safras & Mercados, Paulo Molinari.

This year, the depreciation of the dollar against the real (the Brazilian currency) did not allow for Brazilian producers to have a significant increase in earnings, despite the growth in the prices of soy and corn in the global market. Foreign pricing of the commodities determines the prices in the domestic market as well. This, however, should be different next year.

"The year of 2008 should be good, because it is believed that the exchange rate has already hit bottom," says the economist Molinari.

"Brazilian producers were not quite affected by the price increase (in 2007) due to the exchange rates, but should the rates become stable, then they should feel the effects this year," says the secretary for Agricultural Policy at the Ministry of Agriculture and Supply.

The rising demand in Asian and oil-producing countries, coupled with the production of ethanol in the United States, should keep the global market for agricultural products heated in 2008. And Brazil should continue to be a large supplier.

"Nothing can keep exports from continuing to grow. The world is still buying, and Brazil is still a leading supplier," says Guimarães.

"Exports will be good, above the levels of 2007 due to global demand, which should expand 4%," says Molinari. Brazilian grain production should rise 2.3% in the next crop, to stand at 134.7 million tons, according to the National Food Supply Company (Conab).

The year of 2007 was, according to specialists, a good year for agribusiness as a whole. "It was not so good for cane and coffee, as a result of price reduction, but it was a good year for soy, corn, meats. Bovine meat reached a record high price, the price of corn increased twofold, soy recovered well. Overall, 2007 was a year of recovery compared with 2006, it was not an exceptional year, but it was good," says the economist at Safras & Mercados.

One of the factors that harmed the commodities this year, according to Molinari, was the rise in costs driven by the growth in fertilizer pricing. This happened due to the high prices of oil, and consequently of the chemical inputs used for manufacturing fertilizers.

"The year of 2007 was good, we came from two bad years, complicated crops, problems with pricing, climate, exchange rates. The 2006/2007 crop was normal, it was a good crop, we had no problems with climate, pricing as a whole was good, we had the exchange rate problem, but it was partly made up for by the increase in the prices of commodities," says Guimarães.

Brazil harvested, in the 2006/2007 crop, 131.7 million tons of grains in an area of 46.2 million hectares. Agribusiness exports reached US$ 53.7 billion until November, 18.76% greater than in the same period of 2006.

Anba – www.anba.com.br

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