USDA Releases Baseline Forecast

Last week, USDA released its baseline projections through 2014-15. While these projections made in November 2004, they provide some idea of what USDA might present at its Agricultural Outlook Forum on February 24 and 25. USDA’s baseline forecasts for 2005-06 peg the 2005-06 carryout at 10.9 million tonnes. This is based on planted area that is 486,000 hectares less than 2004 at 29.9 million hectares, a yield of 2.69 tonnes per hectare and demand of 80.9 million tonnes.

USDA’s acreage forecast was made without taking into account the discovery of Asian soybean rust in the United States. As such, it is not unreasonable to assume that USDA might drop 2005 soybean plantings another million acres to 29.5 million hectares. Assuming the same acreage abandonment and yields that are in USDA baseline, 2005 production would be 78.1 million tonnes, which would be about 2.72 million tonnes less than the 2005-06 demand USDA used in its baseline. Given the huge crops that likely will be harvested in South America and large stocks that will remain when the 2005-06 U.S. marketing year begins, it is probably wishful thinking to expect that 2005-06 U.S. soybean demand will exceed 2004-05 levels. Nevertheless, if USDA keeps its 2005-06 offtake at 80.9 million tonnes, the 2005-06 carryout would be 9.25 million tonnes, which would be more than adequate normally. However, with rust a concern this year, such a carryout may not be as bearish.

GM Plantings Increase In Brazil While Total Planted Area Decreases

The number of Brazilian producers that said they had planted genetically modified (GM) soybeans during the 2004-05 crop season increased by over 11% from 2003-04, according to provisional data from the agriculture ministry. Producers are obliged to register with the government if they plant black market GM soybeans and wish to be covered under a national measure that grants amnesty from prosecution for planting illegal GM soy. This season, 92,875 producers signed documents saying they are planting GM soy compared with 83,580 last season, the ministry said. A biosafety bill that would create definitive regulation of biotechnology is awaiting final approval in the Brazilian Congress. The current form of the bill would legalize the planting and sale of GM soybeans and should also pave the way for other GM crops.

Meanwhile, USDA says a combination of lower prices and higher production costs is putting the brakes on the explosive growth of Brazil’s soy area. After years of expanding as much as 15 percent annually, the area planted with soybeans is expected to rise by 9% this season, to 23 million hectares. Production is also forecasted to increase 9%, to 61.8 million tonnes, says USDA.

“The continuing battle against soy rust has contributed significantly to the rising cost of production for farmers at a time when profit margins are already narrowing due to low international prices and an unfavorable exchange rate relative to the U.S. dollar,” says USDA. “Farmers are being squeezed by the need to improve crop management and combat soy rust, while facing very tight profit margins or in some cases negative returns. As a result, the rapid growth of Brazil’s soy industry, accounting for nearly half Brazil’s farm exports, is starting to slow, making it unlikely that it will overtake the U.S. in soybean production as early as next season as once predicted.”

Brazil Threatens WTO Action Over U.S. Farm Support

Brazilian soy producers are calling for a World Trade Organization (WTO) investigation into the impact of subsidies paid to U.S. farmers. Previous moves to take the issue to the WTO were shelved because high world soy prices made it harder to prove the harm caused by U.S. subsidies. But sharp falls in soy prices since the middle of last year have revived interest in the case.

Brazilian agriculture minister Roberto Rodrigues last week said he supported moves to press the U.S. government to reduce subsidies. “The government has encouraged the private sector to think about this,” he said. “There is space for negotiations, but there needs to be a detailed investigation into the case.”

WTO To Examine U.S. Tax Breaks For Exporters

The WTO has agreed to probe U.S. compliance with one of its earlier rulings – delivered at the EU’s behest – on tax breaks for exporters. The WTO said last week that it was ready to look into the legality of the American Jobs Creation (AJC) Act, the latest incarnation of a tax concession system once known as the Foreign Sales Corporation (FSC) Act.

At the end of January the EU suspended WTO-approved punitive import tariffs on a range of U.S. goods, including agricultural products, while it sought to determine whether the AJC Act ended the trade distortions of its predecessor, as Washington claims. Although that suspension remains in place, the clock is ticking on a possible resumption now that the WTO’s Dispute Settlement Body (DSB) has formally consented to making a thorough analysis of the AJC system.

The U.S. blocked a previous request for this from the EU but may not do so a second time under WTO rules. The European Commission and EU trade ministers specified when lifting sanctions that these could be re-imposed if various clauses in the new U.S. rules proved WTO-incompatible. The DSB’s decision could be ready in 90 days, officials say.

Indonesian Soymeal Imports Rising

Indonesian soymeal imports are expected to rise 11% this year, in line with a recovery in demand from the poultry industry, according to USDA. Indonesian poultry production will total 1.2 million tonnes in 2005, up from 1.16 million tonnes in 2004, as the country recovers from last year’s outbreak of avian flu, USDA said. This in turn will boost demand for protein feeds, the bulk of which need to be imported. Indonesia has no soybean crushing facilities of its own, so soymeal is fully supplied from imports. USDA forecasts that Indonesian soymeal imports will reach 1.56 million tonnes in 2005-06, up from 1.4 million tonnes the previous year.

Soy Complex Prices Higher On Weather Concerns In Southern Brazil

The soy complex closed higher on February 17 reflecting concerns with hot and dry weather in southern Brazil producing areas. March bean futures closed up $6.25 finishing at $202.82; May was $6.71 higher, closing at $203.19 and July gained $6.98 ending at $204.29. March meal was up $9.48, closing at $189.04; May was $10.14 higher, finishing at $188.71 and July increased $9.70 to finish at $189.93. March oil closed $5.73 higher to finish at $436.95; May increased $5.07, closing at $438.89; and July gained $5.07, ending at $442.46.