From: OfficialWire
In the new Brazil Agribusiness Report for Q3 2009 we introduce the new Soybean Outlook. The rise of soybean production in Brazil has been rapid over the past couple of decades. Production has grown three fold since the beginning of the 1990s and the area harvested has more than doubled. Brazil is now the world's second largest producer after the US and production is continuing to expand.
In the coming years, much of the expansion of soybean production will be driven by increasing demand for the crop from China. Soybean consumption in China has grown more than 100% this decade and we see demand continuing to rise as per capita incomes grow and demand for meat and edible oils increases.
Brazil will be key in supplying this demand.
There are, however, problems that must be overcome for the long-term success of Brazil's soybean production. Infrastructure in some of the main producing regions is woefully lacking and farmers face huge expense in getting their crops to market relative to their competitors in North America. Port capacity is also inadequate causing major bottlenecks for exports.
The rapid increase in soybean production has worried environmentalists with the industry often coming under fire for allegedly contributing to the deforestation of the Amazon rainforest. The Brazilian Oilseed Processors Association (Abiove) in 2006 agreed to stop trading soybean produced on newly deforested areas. While the agreement will no doubt be very hard to enforce, a report jointly produced by Greenpeace showed that cattle ranchers were a far larger contributor to deforestation than soybean producers. Even without pushing further into the rainforest, there is still plenty of room for increasing the area planted to soybean in Brazil assuming demand remains strong.
Brazilian agriculture is seeing mixed fortunes through the current economic slowdown. Tightening credit conditions have put a halt to many projects conceived in the commodity price boom of 2007 and 2008.
Sugar and ethanol refineries have been hit particularly hard. Prices for some important commodities, however, including soybeans and sugar, have held up well on supply constraints.
Livestock producers are also feeling the pressure as demand for meat slows and input costs remain high.
The government has stepped in to help producers with a BRL10bn (US$4.90bn) fund to provide loans to struggling firms at favourable interest rates. The difficulties have also spurred a wave of consolidation moves as companies aim to cut costs by increasing economies of scale. By far the biggest move is the merger of PerdigĂ£o and Sadia, Brazil's two largest poultry producers, to form Brasil Foods. The new company will be the world's largest poultry producer. We would not be surprised if there were more mergers and acquisitions in the Brazilian livestock sector in the coming months - JBS, the world's biggest beef producer, has been on the hunt for acquisitions with a recent move to takeover the US' National Beef blocked on competition concerns.