Soybean area is down about 10 percent this year in Mato Grosso, the primary producing state in Brazil. This will result in an expected 10 percent reduction in the region's soybean production, which accounts for 35 percent of all soybean production in the country.
With the dip in area, the Mato Grosso's production should fall from 17.5 million tons in 2004-05 to 15.7 million tons in the 2005-06 season. That's a 66 million bushel decline. Area not used for soybeans this season will be fallowed.
The county of Rondonópolis, in southern Mato Grosso and one of the state's main soybean-producing regions, is an example of the challenges Brazilian farmers are facing.
“Because of the problems we are dealing within the cerrado (central Brazil vegetation, much like a savannah, where the country's highest-yielding soybeans are grown), we're planting in the dark. The feeling is that's all wrong, and that we'll be needing a long-term planning strategy rather than seasonal plans,” says a farmer from the region.
Factors that led to a fall in planted area include the value of the dollar declining in the face of the real (Brazilian currency), the reduction in commodity prices in international markets and rising costs, especially for transportation.
The latter will have the greatest impact in Mato Grosso, which has the highest transportation costs for grains in the country. Most of the region's grain is shipped by trucks to the Port of Paranaguá, in the state of Paraná — more than 1,240 miles away, across poorly maintained or even rough roads — and from there, exported by merchant ships.
Transportation costs are rising in Brazil, too. In 2004, diesel was $1.32 a gallon. Today, it's $3.40 a gallon.
“Just due to the increase in shipping cost, we're losing about a dollar per 60-kilogram sack of soybeans,” says Ricardo Tomczyk, official for the Mato Grosso branch of Aprosoja (National Association of Soybeans Producers). A sack is equivalent to 2.2 bushels, meaning the loss is roughly 45 cents a bushel.
According to the association, shipping costs from Rondonópolis to Paranaguá have risen 50 percent over the past year, from $40 per ton to $60 per ton.
Currency valuation is also playing havoc with Brazilian soybean prices. At the end of the 2003-04 Brazilian growing season, a bushel of soybeans sold for R$ 22.63 (reals). At the time, that price was equivalent to $7.66 in U.S. dollars ($R 2.95 = $1).
Today, a bushel of soybeans is being sold for R$ 11.13 ($R 2.24 = $1). Today, that price is equivalent to $4.95 in U.S. dollars. The decline in respective price is 32.7 percent in dollars, but 50.8 percent in reals.
There are still those in the country who predict that Brazilian soybean production will be higher this season than last. In October, USDA projected Brazilian soybean production for 2005-06 at 62.6 million metric tons, compared to 53.7 million metric tons in 2004-05, a dry year for Brazilian soybean producers.
But the Brazilian farmers' debt, default in input payments and the shortage in credit shows clearly that it's safer to bet on the Cubs to win the World Series than in the full recovery of Brazil, at least for this season.
G-20 (the group of countries with strong interest in agriculture), led by Brazil, is still pressing for cutbacks in U.S. and EU subsidies. The G-20's objective is to secure a reduction of 75 percent in American aid to its producers and of 80 percent in the EU.
Europeans are stalling the negotiation with their stipulation that all 25 member countries must approve the proposal first. The minister of foreign trade for France, Christine Lagarde, even said previous offers from the EU are no longer on the table, since they were not discussed within the European Parliament.
Jose Sergio Osse is a Brazilian agricultural journalist and owns a public relations firm in Sao Paulo. He has worked as a press advisor for Syngenta, Brazil, and as an agricultural reporter for the country's major newspaper.