The prolonged sovereign debt turmoil in the eurozone, faltering US growth and a marked slowdown in emerging markets have weakened global economic growth, forecast at 3.5% in 2012. The International Monetary Fund (IMF) warns that the downside risks have intensified and threaten to derail economic recovery, unless urgent action to allow financial conditions in the eurozone to ease coupled with progress on banking and fiscal union; for the US to raise the debt-ceiling and develop a fiscal plan and emerging markets to support their economies to cope with trade declines and the high volatility of capital flows. But while these serious challenges remain, they were overshadowed by a catastrophic drought that savaged crops in the US and threatens to trigger a global food crisis — the third in five years — which crushed hopes that large crops and falling commodity prices would offer some relief to the troubled global economy.
The drought, the worse seen in half a century, decimated the corn crop and adversely affected soyabean yields, across large swathes of the US. The prospect of plunging feed grain supplies, exacerbated by heat damage to crops across most of the spring wheat growing areas in Russia, Ukraine and Kazakhstan, and reports of below-average monsoon rains in India, fuelled price rallies across the feed grain complex. Corn surged by over 60% from mid-June, while wheat and soyabeans made significant gains. The sheer scale of the cut in US corn yields and an increase in acreage that will not be harvested this year, prompted concerns that record high grain and oilseed prices, combined with scanty stockpiles could lead to a re-run of the 2007/08 food crisis. The
UN’s food agency reported a jump in food prices by 6% in July, and warned against export bans, tariffs and buying binges that worsened the price surge four years ago, but neither they nor the IMF and World Bank see signs of a widespread food crisis this time.
Despite an increase in the planted area and favourable sowing conditions for several countries, USDA’s preliminary forecast indicates this year’s drought-hit grain and oilseed harvest will fall by some 40mt (million tonnes) to 2.24bn/tonnes. The smaller 2012 global harvest has caused a seismic increase in the price of grains and oilseeds, not seen before, expected to ration demand, as global supplies fail to keep pace with rising feed, food and fuel demand or, replenish dwindling reserves, resulting in high and volatile prices this year and beyond, with poorer countries hit hardest as food makes up a larger proportion of the household budget.
Global grain production is forecast in 2012 at 1,784mt, 3% lowerthanlastyear. Whileoverallgrainuseisforecast 1,821mt, it is expected to outstrip supply, drawing stocks lower in 2012/13. Grain for feed use is cut to 794mt in response to higher prices, and reduced demand. With the exception of China and Brazil, overall feed use has been scaled back with a number of countries expected to shift some of their livestock and poultry feeding from corn to wheat, and other non-grain ingredients. Theglobaloilseedcropisforecasttoincreaseby 21mt to 457mt — smaller output of US soyabeans, will be more heavily dependent on the outturn of good South American soyabean harvests to ease price and supply pressures. Feed use of oil meals is forecast to rise by 3mt to 264mt, due to demand for protein in Asia.
Smaller wheat crop in Russia 39mt, agricultural Ministry announced that grain yields are 27.5% lower than last year at 1.98t/ha; Kazakhstan 11mt and Ukraine 15mt, partially offset by larger crops in, India 94mt, Canada 25mt and the US 62mt, where the crop was planted earlier, and avoided the drought. Reports on the harvest in Germany, which was delayed by rain but is almost complete suggest that wheat output is lower 22mt, winter kill reduced the winter sown harvested area; while in France yields are higher but a greater proportion will be classified as feed wheat. Global wheat output reduced to 663mt, some 32mt below last year’s record.
Argentina is forecast to sow 3.6m/ha with wheat this season down 22% from last year, according to the Buenos Aires Grains Exchange, and expected to produce a crop of 11.5mt considerably lower than in previous years, as wheat loses acreage to corn and soyabeans. When comparing the costs of cultivation (crop rotation, irrigation, seed, fertilizers and other inputs) wheat and corn are similar, but with government restrictions on wheat exports, and fewer marketing outlets, which curbgrowers’returns,makescorn,soyabeanandmore recently barley, better options. Also while international wheat prices have risen since mid-June by 40%, they are not keeping pace with corn.    BCH the Australian growers’ co-operative, estimates the Australian crop to be smaller than the bumper harvest last year at 24mt due to lower output in the key producing state of Western Australia, and below the USDA estimate of 26mt.
The combination of exceptionally low stocks and soaring prices will provide the incentive to boost global plantings for the 2013 harvest. Post drought while dry weather across the US wheat growing regions remains a concern and may delay autumn fertilization as farmers await rain and cooler temperatures, US corn growers reveal intentions to plant 95.9m/acres higher than last year and the largest corn acreage in 75 years.
Due to reduced supplies and a substantial increase in the international price of corn, which has risen faster than wheat, the USDA has increased the estimate for feed wheat use to 134mt, although 12mt lower than last year, while livestock producers and feed manufacturers in a number of countries including the EU-27, Ukraine, South Korea,Vietnam, Israel, India and Thailand, shift some of their livestock and poultry feeding to wheat. Global trade is forecast lower at 137mt, due to higher prices and reduced demand. Smaller Russian crop will reduce wheat exports from 21mt to 6mt in 2012/13. In recent tenders, Egypt’s state grain authority, GASC, purchased 60,000/t of wheat from Russia at $313/tonne, and 60,000/tonne from Ukraine at $313.88/tonne (Aug 14), beating offers for US soft wheat at $344.53/tonne (ex. freight). Of the 840,000 tonnes of wheat offered to the GASC 540,000 tonnes were sourced from Russia.
Egypt’s purchase of Russian wheat coincides with a report highlighting the decline in Russia’s on-farm stocks, against a backdrop of concerns that the government may impose grain export restrictions later in the season to preserve supplies, and reflects heightened competition between shippers. Andrey Sizov, SovEcon managing director, said. “... Exporters were selling new crop quite aggressively even in May and June, and needed to source supplies.” The early sales, ahead of the market rally, left some shippers with loss-making deals, while margins remain low and reliant on Russia’s 10% VAT rebate. Without the rebate, wheat export prices of $310-315/tonne, compared with costs at port of $300–303/tonne and other costs of $30/tonne, imply a loss. Fears of Russian export restrictions refuse to subside, providing support to wheat markets. Paris wheat contract (Nov12)-E267.50/tonne. Liffe UK wheat contract (Nov 12) £206.40/tonne (Aug 23) gains also supported by the re-opening of the UK’s Ensus wheat ethanol plant, Europe’s biggest bio refinery, with capacity for more than 1mt of grain a year; CBOT December wheat contract $9.17/bu at the close (Aug 22).
While early indications pointed to a bumper coarse grain harvest, needed to replenish stocks and pressure prices, the sudden and severe drought hit the US corn crop and coupled with setbacks in the EU and Ukraine, cut supplies of coarse grains, by 28mt to 1,121mt (corn 849mt, barley 131mt and sorghum 59mt); tight supplies saw feed grain prices reach new contract highs, and are forecast to reduce global demand for food, feed and fuel use by 8mt to 1,121mt; the sharp decline in US demand partially offset by increased consumption in other countries including, China, Brazil, Argentina and Canada. With a smaller exportable surplus, and higher prices international trade in coarse grains is forecast at 116mt. Global stocks at 152mt are the lowest in five years, while stocks of 35mt in key exporting countries are at historic lows.
Before the drought struck US corn production was heading for a record 376mt, but the widespread impact on 31 US states during a vital stage of crop development, slashed estimates to 274mt, a drop of 102mt. Better crop prospects in China 200mt, Egypt 6mt, Mexico 22mt, Nigeria 9mt, coupled with the prospect of better crops in the southern hemisphere countries — South Africa 13.5mt, Brazil 70mt and Argentina 28mt — on track to produce record crops, will lift global corn output to 849mt. However, recent reports cut the estimate for the EU crop by 3.5mt, and the Profarmer crop tour, currently touring the northern and central states in the US, made up of traders,
analysts, researchers and crop scientists, suggest further downgrades to the US crop are likely. The International Grains Council forecasts the corn crop at 838mt below USDA’s estimate.
The prospect of sharply reduced corn supplies, and the significant hike in corn prices, which rose by 60% from mid-June, will result in a drop in consumption, the first time since 1993/94; competition for supplies between US food, feed, fuel and exports, reignited the food-versus-fuel debate. Livestock producers and feed processors joined by Democratic governors from Maryland, Delaware, North Carolina and Arkansas and the UN’s food agency, petitioned the Environmental Protection Agency (EPA) to waive the Renewable Fuel Standard (RFS) mandate for ethanol, which requires oil companies to blend 13.2bn gallons of ethanol with the gasoline they produce this year, rising to 13.8bn gallons in 2013.
Additionally, the RFS permits oil companies to build-up blending credits or RINS (renewable identification numbers), which currently total 2.6bn gallons, that can be used to count against the ‘blending total’ in any year. Those in favour of the mandate, like the growers’ organization and the fuel industry support the use of RINS, in preference to changes to the ethanol mandate. This year the use of RINS would cut the corn used for ethanol production by 13mt, easing pressure on supply. The EPA has until October to evaluate the economic harm done by the original RFS and decide if it will issue a waiver.    A recent report from Purdue University, which examines ‘Potential impacts of a Partial Waiver of the Ethanol Blending Rules’, concludes that the impact of the waiver in reducing corn prices is not clear as the price of corn would only fall under certain market conditions
Global consumption of corn is revised down to 862mt, 6mt below last year and well below pre-drought estimates of 923mt, with global feed use forecast at 509mt. The USDA expects many countries to respond to tight corn supplies and volatile prices this season, in different ways; some countries, including China, Brazil, Argentina and Canada, are expected to increase the use of corn, due to better crops, while in the US a sharp 25mt cut (feed 12mt and fuel 13mt) in corn use, is forecast. Rabobank estimates that the cuts in feed and fuel may be difficult to achieve, given reasonably resilient production of ethanol-needed as an oxygenate additive to gasoline-whether or not the US waives mandated levels of use-and the need to feed US livestock. While feed demand is seen tumbling by 10.4% (12mt), US livestock numbers are set to fall by only 1.4% this year, Such a reduction in corn use for feed would be difficult given that pasture conditions (the alternative to feed lots when prices rise), are extremely poor. The bank concludes that livestock farmers will choose to feed wheat rather than reduce their herd in the short-term, and raises the feed wheat estimate to 10mt in 2012/13, 4–5mt more than the USDA forecast.
The rapid-rise in prices of corn and soyabean and other feed ingredients, at a time when economic uncertainty, higher prices and slower growth have curbed demand have pressured livestock margins. Beef production is static, poultry lower by almost 1mt to 82mt, with pig meat rising by 3mt to 104mt mainly due to increased output in China. The FAO meat price fell in July by 1.7%, the third consecutive monthly fall, while market weakness characterized the four major meat sectors, pig meat saw prices fall by 3.6%, with smaller reductions of 1% for poultry, beef and sheep meat.
Typically feed costs account for approximately a third of production costs for dairy and intensive beef producers, 60% for poultry and 70% for pigs. US-based Smithfield, the world’s largest pork producer, confirmed it had locked in feed costs well into the spring, before corn hit $8/bu in June; it forecasts pork prices to rise by over 10% in 2013. And, with corn and soyabean meal prices at record highs in August, this year, it expects the cost of beef and chicken to become more expensive with the price spread between the two expected to narrow. Both Smithfield and Pilgrim’s Pride Corp. (PPC) imported Brazilian corn to cut feed costs this year. Farmers groups in France have passed on higher feed to animal breeders while in Spain, Europe’s major pork producer, farmers are especially vulnerable because the animal feed industry relies on imports. Brazil’s UBABEF and Germany’s ZDG Poultry Associations believe the sudden and dramatic surge in the cost of corn and soyabeans, on top of higher prices and operating costs even before the drought, have squeezed producers’ margins, with costs rising faster than meat prices. Both organizations conclude the current situation is unsustainable, and that higher costs will reduce production and increase consumer prices for meat in coming months, as producers seek to recoup costs. Fitch ratings (Aug) report that the impact of high grain prices will be more immediate in poultry, while in the short run live pigs may decline as producers slaughter animals early; while US cattle ranchers may skip the feedlot and send the animals directly to slaughter, to avoid higher feed costs
Disease problems in Asia including foot and mouth disease (FMD) in South Korea and PRRS in China have improved, but while input costs have soared, China’s pig meat sector is grappling with domestic oversupply and low meat prices. China is the world’s biggest meat consumer, with pork consumption forecast at 52mt this year, accounting for almost 50% of global production. With larger supplies of corn due to a bumper harvest, feed use is expected to rise by 8mt, but the sharp hike in corn and soyabean markets, has lifted the feed price to historic highs, that could worsen losses for Chinese pig farmers. Ma Chuang, deputy secretary-general of the Chinese Association of Animal Science and Veterinary Medicine, expects pork price growth will be stable to the end of the year, but expects pork prices to grow much faster in 2013.
For other major corn buyers, the USDA projects Japan’s corn imports to remain unchanged at 15mt while China’s imports will decline by 3mt due to a record harvest. Two successive years of large crops in Brazil support some growth in corn feed use. Other major corn buyers like South Korea are switching some of their corn requirements to wheat-purchasing six cargoes of feed wheat totalling 325,000 tonnes (likely Indian origin)
between $322/tonne and $326/tonne (C&F) for arrival by November; Indian wheat on a delivered basis in East Asia selling more than $65/tonne cheaper than US corn. Corn 3YC FOB Gulf quoted at $336 (Aug 23). The US traditionally supplies more than half the world’s corn, but this year exports are not expected to go beyond 33mt (30%) down from 39mt last year, leaving stocks at a critical 17mt, representing not more than 21 day’s supply. The tightening supply situation in the US has caused Chicago’s most-watched December corn lot to hit a contract high $8.49/bu (10 Aug). The ProFarmer group indicate initial crop results were below expectations and are supporting the steady rally in prices-corn hit $8.40/bu (Aug 21), retreating to $8.14/bu (23 Aug) at the close.
Barley prices like other feed grains have remained high, and have strengthened since the drought-French barley Fob Rouen $307 (Aug 21), UK Feed Barley Merchant Sept $261-$268/tonne (Aug 17). Larger crops in the EU, Canada, US and Argentina offset by smaller crops in Australia, Russia Ukraine, Kazakhstan and Morocco, cut global output to 131mt, 3mt below last year. Feed use is forecast at 90mt, 1mt below last year. Trade is forecast to fall to 17mt — with a sharp cut in Iran’s imports down by 800,000 tonnes and Saudi Arabia, the largest single buyer of feed barley, expected to cut imports by 500,000 tonnes to 7mt in 2012/13. While Argentina is forecast to export a record 4.2mt of barley this year, shippers scrabbled to register exports to avoid a tax (expected to be between 3–5%) on barley exports this year. The tax is based on a reference price for feed barley of $280/tonne. Argentine farmers’ interest in the international barley market, is due to tight export restrictions that limited foreign competition and curbed grower’s returns in the wheat market.
For sorghum a combination of an increase in the planted area and better crops in a number of countries including Sudan, US, Argentina, Brazil, India and Mexico boosted global output to 59mt, with consumption rising by 4mt mainly for feed. Larger exports to Morocco 2mt due to poor domestic harvest, Mexico 1.5mt and Japan 0.3mt boosted trade to 6mt. Due to the drought and the sensitivity surrounding corn, the US federal government is close to approving sorghum as an ‘advanced’ biofuel, joining sugar and biodiesel. Sorghum is seen as being more drought-tolerant than corn, and although the technology is still not fully developed, it is possible, but would require production to steadily increase through the next decade. Sorghum November delivery FOB Nola $329 (Aug 17).
Markets rallied as further reports emerged on the state of US soyabean yields — CBOT soyabeans November contract hit a high of $17.34 1⁄4 /bu before closing at $17.23/bu (Aug 21). USDA forecast output will fall by 10mt to 73mt and likely to be revised down as recent rains have failed to improve Midwest crops, while only razor-thin US stocks remain, until southern hemisphere crops arrive. Global soyabean output is increased to 261mt (despite a smaller US crop) due to larger anticipated crops in South America Brazil 81mt, Argentina 55mt and Paraguay 8mt; output of rapeseed 62mt and groundnut 36mt are also expected to increase, partly offset by lower crops of cotton 43mt and sunflower seed 36mt. Global oilseed production forecast higher at 457mt, while crushings marginally up by 1mt to 390mt and global trade forecast to increase by 3mt to 112mt, the increase mainly due to Asian demand.
The recent price surge for soyabeans comes on top of a previous run-up in prices from earlier this year, caused by extensive crop losses in South America that reduced the cushion the market built-up over previous years. At that time, soyabean prices peaked at nearly $15/bu before falling on the strength of early US plantings and improved production prospects. However, this time demands for crush and exports, as well as deteriorating crop conditions and concern that stocks of US soyabeans, like those of corn, will be unusually tight, saw prices of soyabean and soyabean meal surge, this will pressure livestock and poultry margins and eventually curb demand for soyabeans and soyabean meal, until the large South American crops become available in March, when prices are expected to moderate.
Lower prices should boost soyabean demand as buyers replenish depleted stocks and livestock and poultry producers slowly expand their operations.
US soyabean export prices FOB Gulf averaged $644/tonne in July, rising on the back of poor US yields; but in one day soyabean export prices FOB Gulf rose by $19 to $685/tonne (Aug 21), some $154 higher than at the same time last year. USDA forecast global soyabean trade up by 3mt to 94mt, mainly due to increased exports to China, but with export prices at these levels significantly raises feed and food costs, is expected to discourage buyers. Global crushings of soyabeans are expected to rise to 227mt, but Chinese processors are said to be making plans to reduce production as the crush margins are being eroded by the drought-driven rally in the US and price curbs urged by Beijing. With China’s pig meat sector in oversupply and low consumer prices for pork, producer margins are squeezed with crush margins said to be in negative territory. Shares in Wilmar, the top oilseed supplier and processor fell by 10% on reports of dismal earnings as no outlets are willing to pay higher prices for the products.
While global demand for soyabean meal and oil is partially reduced in response to higher prices, US crushings are forecast to fall by 5mt in 2012/13. Recently due to near record-high prices for soyabean meal created the incentive for US processors to buy and crush soyabeans.    Demand for soyabean meal, has climbed in the US as a result of lower corn supplies and the cut-back in ethanol production, which has reduced the availability of Distillers’ Dried Grains and Solubles (DDGS). DDGS, a valuable feed by-product from ethanol production, is mainly consumed by the domestic feed market, in direct competition with soyabean meal. With feed mixers replacing DDGS with soyabean meal, has stimulated demand for soyabeans — CBOT soyabean meal futures Sept. $590.63/tonne (Aug 22).
Southwest monsoon dictates agricultural production in India
The behaviour of southwest monsoon, which generally accounts for about 75% of annual precipitation of rains, has a decisive bearing on India’s agricultural production, including oilseeds. Production volume of groundnut, soyabean (black and yellow), sunflower, sesame and niger, sown in July and August and harvested before the winter sets in, is decided by the course of monsoon as only about 45% of India’s cultivated area gets irrigated water. The southwest monsoon, which breaks in the
first week of June, has so far played cat and mouse with the country, making policymakers worry about its impact on farm production and resultant food inflation.
For example, ahead of the season of rains, the Indian Meteorological Department (IMD) forecast that the 2012 southwest monsoon would be 99% of the long period average with an error possibility of ±5%. But till July end, the rainfall deficiency over large tracts of the country, including major oilseeds growing centres, was big enough to raise the scare of a severe drought and consequently a major setback in crop production. The resurgence in monsoon since has somewhat improved the crop outlook with the area under oilseeds cultivation rising 18% from 13.83m hectares on 27 July to 16.57m hectares on 16 August.
But whether the oilseeds coverage will finally come up to 18.5m hectares to give India a good monsoon harvest remains a point of conjecture. Encouragingly, in the last few weeks, the country’s overall monsoon deficiency is down from 21% to 16%. September rains will, however, have a decisive impact on the size and quality of oilseeds harvest. In its latest monsoon assessment, IMD has said that rains in September would be less than in August. Based on the first monsoon forecast, Indian research agency CMIE projected nine major oilseeds production in 2012/13 to rise by 3% to 32.1mt (million tonnes). Given the situation, there is no way the CMIE forecast will come true. The crystal gazing, therefore, is about the extent of shortfall in oilseeds crop that India is going to have in the current season leading to that much higher imports. The country is the world’s second-largest importer of edible oils after China.
In fact, the situation could have been grimmer for India had not the government in an uncommonly proactive way revised minimum support prices (MSPs) for oilseeds well ahead of the start of sowing operations. With the MSP for groundnut up was 37% to Rs3,700 ($81.30) a quintal and for soyabean 30% to Rs2,200 a quintal, it is expected that farmers found to be losing interest in growing oilseeds in the last few season will change their mind. In fact, the move has opened the possibility of shift of land from cotton, where rewards are minimal to oilseeds.
“This is an unusual year with monsoon rains flip-flopping and so we have to wait for the next season (MSPs are revised annually) to see the impact of compensating oilseeds growers handsomely in terms of production increment. At the same time, I will say MSPs for sunflower and safflower will have to be raised considerably if land under these oilseeds is not to shrink,” says Sushil Goenka, president of Solvent Extractors’ Association. The growing ranks of Indian middle class and also change in general food habits are leading to an annual demand growth of edible oils of 3% to 4% in normal times. This is happening in a situation of near stagnation in India’s oilseeds production and the crop prone to damage by drought. Oilseeds productivity in India leaves much scope for improvement and this is the road to be pursued since land will become increasingly scarce.
India did not have a good crop last year and the prospects for 2012/13 remain uncertain. No wonder then that in the first nine months of the current season till July 2012, the country’s imports of vegetable oils rose 20.22% to 7,265,527 tonnes against 6,043,403 tonnes in the corresponding period of 2011/12. In the import basket, the share of crude palm oil at 81% was 5,779,504 tonnes.
An SEA official says that “as we go forward, we will, however, be importing larger and larger quantities of refined, bleached and deodorized palmolein (RBD) from Indonesia for its inverted export duty structure. In its drive to value addition to industrial and agricultural raw materials, Djakarta has levied an export duty of 9% on refined palmolein and double that for crude oil.”
Moreover, the fall in the premium for RBD palmolein over crude oil from $95 a tonne to around $33 within a year is also supporting imports of refined oil. Even while Malaysia remains the top supplier of palm oil to India, Indonesia is taking growing interest in this market. Rise in imports of refined oil is, however, of concern to Indian refineries, which already is beset with much excess capacity. Besides palm oil, India has emerged as a big importer of oils derived from soyabean and sunflower.
How will palm oil prices behave in the coming weeks in the face of economic slowdown in the two largest importing countries China and India? According to most analysts, palm oil is likely to drop to its lowest in 22 months as Malaysian harvest outlook improves in a backdrop of a slowing world economy. According to Palm Board in Malaysia, palm oil inventories rose 17.6% in July to 2mt, the most in almost two years. July also was the fifth month in a row of Malaysian production rise, climbing 15.1% to 1.69mt. Therefore, expect palm oil to stay within 3,000 ringgit ($957) a tonne in the near term.   
Kunal Bose
Brazil anticipates record exports next year
Brazil is on course to export a record 80mt (million tonnes) of soya and maize next year, as high world prices push up plantings.
High prices caused by the severe drought in the US this summer, by low world stocks and continued strong demand, notably from China, are encouraging farmers in Brazil to hike up plantings of soyabeans and maize this year.
Soya will be planted on more than 27 million hectares for the 2012/13 crop, an extra 8.4% — or 2.2 million hectares more than last year. Weather permitting, an all-time record crop of 82mt is expected, 24% or 16mt more than this year and 7mt more than the previous record of 2011.
The soya crop in the south of Brazil itself was affected by drought as well early this year, with the result that 5mt less will be exported this year than the record 50mt of 2011.
Most of the extra soya to be available next year will be exported, taking exports to a record 60mt. Thirty-five million tonnes of that will be beans.
This is expected to result in Brazil overtaking the United States to become the worlds leading exporter of soya.
Up to 40mt of the soya will go to China, by far the most important importer of Brazilian soya beans in the past few years. Just over 3mt of beans were exported to China ten years ago, at a time when the Netherlands was Brazil’s leading customer for beans.
The record price of maize, hit even harder than soya by the drought in the United States, will also encourage farmers to plant more of the grain 2012/13.
A maize crop of 76.5mt is expected for 2013, 3mt more than has been harvested this year.
Soya is an easier and cheaper crop to grow than maize, so many farmers will give preference to the oilseed as a summer crop, planted in September and October in Brazil.
However, the area planted to maize as a winter crop, most of it put in the ground in the centre west as soon as the 38mt of soya to be harvested there this year has been collected, will be responsible for most of the extra.
Because this years winter crop has been a record as well, 15–16mt will be exported this year, most of it shipped in the second half. Almost all the soya has left the country by now, so the ports, as well as roads and railways are under less pressure.
Until a few years ago, Brazil frequently imported some maize, of which more than 40mt is used each year to feed pigs and chickens, as well as dairy cattle and some of the beef cattle held on feedlots in the dry season.
This year, some of Brazil’s surplus maize will find its way to the United States. The US is not only having to cut back sharply on the amount of maize it exports, or uses to make ethanol, but will have to import some from Brazil as well.
On the other hand, because farmers and traders in Brazil rushed to export as much soya as soon as possible after it was harvested, and with most of the crop in by early March, Brazil may have to import some soya at the end of this year and early in 2013, and this could come from the US.
About 20mt of soya meal is needed for animal feed, as well as the maize.
Feed is responsible for about 65% of the cost of raising livestock and the price of maize and soya meal has risen by up to 50% in the past few weeks.
As a result, the retail price of meat is now rising fast as well, causing analysts to suggest that the price of chicken and pork will increase by up to 40% to compensate.
Brazil’s exports of both pork and chicken have been slipping in recent months, as has domestic demand. Therefore, farmers are cutting stocks and sending animals for slaughter younger and lighter than usual. The result may be that less feed will be needed in the next few months than usual.
The fact that so much extra maize has been exported this year has put tremendous pressure on Brazilian ports, especially Santos and Paranagua, as well as Rio Grande, in the state of Rio Grande do Sul.
The proportion of the soya Brazil exports which is grown in the states of the south and south east has fallen steadily over the past 20 years. More has been grown each year in the centre west and even more recently, in the north east.
The roads linking states such as Mato Grosso and Rondonia to ports on the Amazon river are very precarious, while waterways have still to be opened to navigation. As a result, almost two thirds of the soya for export still travels up to 2,500km by truck to ports in the south east, at a cost of about $100 per tonne.
More than 9mt of beans — as well as almost 3mt of meal — left from Santos last year, compared with only about 8mt of the two products seven years earlier. Six million tonnes of beans, and 4.5mt of meal, left from Paranagua as well last year.
As soya plantations have fanned out in the past 15 years, more is being exported from ports such as Itacoatiara, adjacent to Manaus on the Amazon river, from Santarem, half way
between Manaus and the open sea and from Sao Luis, terminal point of the ‘north–south” railway being gradually extended south through Tocantins to Goias state. Some now leaves from Salvador and Vitoria, two ports which between them shipped 4mt of beans last year.
But the increased competition from maize can mean a truck arriving at Santos or Paranagua often has often has to queue for three or four days before it can unload its cargo, which obviously pushes up costs.
Even now, only about 40% of the soya for export, is taken to ports by train.
The Brazilian economy is now slowing after a decade during which wages were increased faster rate than production, causing consumption to increase.
With costs and inflation under pressure, the government has launched a major programme for improving logistics as part of a series of measure aimed at getting the economy growing again. About US $150 billion is to be spent on building 10,000km of new rail track, upgrading ports and roads and building locks on rivers. This programme has been received by considerable scepticism. It is noted that although work on the 2,500km-long North-South line which runs through the heart of the soya growing area began 25 years ago, the line is not yet complete.
Two hundred kilometres of track has been found to be substandard, so will have to be re-laid at a cost of $300 million.
Dredging work has been carried out at 40 ports and terminals in the past few years, to allow larger ships to use them. But the navy, responsible for authorizing access by larger ships, has so far given permission for only one of them to handle such vessels.
An oil refinery being built in Pernambuco state, will cost ten times to build as much as was first estimated, and is running four years behind schedule.
So nobody is betting that a new generation of roads, railways, ports and waterways, will be operational any time soon.
Patrick Knight