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29. March 2004 Bad Weather Cuts South American Production Unfavorable weather conditions from January through March has led to smaller than expected crop for South America’s producers. Brazil’s soybean crop is about 45 percent harvested, and low yields are reported in southern Mato Grosso do Sul and western and northern Parana. Crop damage also is being reported in southern Goias. In Mato Grosso, with reports of weather damage and Asian rust problems, reports are indicating yields slightly better than expected but still below normal. In Rio Grande do Suldry conditions in March also have reduced yields. The majority of Rio Grande do Sul’s single-crop soybeans are in the mid-filling stage with reports of shorter-than-normal plants that set fewer-than-normal pods. Analysts now expect Brazil’s production to be 53 million tonnes, 2.75 million less than the previously expected, with 70 percent of that reduction occurring in the drought-affected areas of southern Mato Grosso do Sul, western Parana and Rio Grande do Sul. Dry conditions also have cut yields in Argentina. Analysts expect Argentina’s soybean production to be 34 million tonnes, which is about 1 million tonnes less than the Argentine Agriculture Secretary’s forecast earlier in March. USDA estimates 2003-04 Argentine soybean production at 36.5 million tonnes. As of March 22 Argentine farmers had collected 4.3% of the 2003-04 crop, according to the Buenos Aires Cereals Exchange. The pace of collection is down a year ago at this time, when farmers had already harvested 10% of the crop. However, last year’s crop measured 12.8 million hectares of planted soybeans while this year’s planted area stands at 14.4 million hectares, according to the exchange. Soybeans in Argentina are mostly in the pod-setting to early filling stage, and reports are of short plants with a low numbers of pods. The average yield through March 22 was 2.17 tonnes per hectare. This is down about 25% from 2.89 tonnes a year ago at this time. "Rainfall did not reach the main soybean production region," the exchange said. "Moisture levels continue to be minimal and continue to affect second crop soybeans in central parts of Santa Fe and first crop soybeans that are in the first phases of pod formation. A continuation of this dry climate would imply a greater reduction in yields. As we said in our previous report, the harvest will not exceed 34.5 million tonnes in the best of situations. The prospects for the next few days call for dry weather, which is not at all favorable for second-crop soybeans." February Crush Exceeds Expectations U.S. mills crushed more soybeans in February than analysts had estimated, according to the Census Bureau’s monthly crush report. Crush totaled 3.58 million tonnes. That compares to January’s crush of 3.97 million tonnes. Meal stocks totaled 377,000 tonnes in February and oil stocks in February reached 902,000 tonnes, slightly less than estimates. If this trend continues the result could be lower stocks than expected, which would mean greater pullback and higher prices later in the year. Ocean Freight Spread Continues to Widen The cost to move grain to Asia continues to get more expensive out of the Center Gulf relative to the Pacific Northwest (PNW). On March 19, the ocean freight spread between the Gulf and the PNW to Japan was record high at $28.91. For comparison, this spread is 233 percent greater than the historical average for the month of March. The Gulf ocean rate remains firm as South America is keeping ocean freights higher as it moves its record crop to the market, thus demanding a considerable number of vessels. The PNW is able to achieve a lower rate as vessel owners and operators are able to take advantage of the shorter distance to haul grain from the PNW to Asia and get a better utilization of the vessel. Analysts expect ocean freight rates to remain firm throughout 2004 and going into 2005 as global demand keeps increasing and the number of new vessels coming to the market place may not be sufficient enough to keep up with the demand. Malaysia’s Imports Of U.S. Soybeans Could Grow In 2004 Imports of U.S. soybeans by Malaysia is expected to increase by 18% to 240,000 tonnes in 2003-04, according USDA. Against the concern over the current avian influenza outbreak in the region and the current surge in feed-prices and sea freights, USDA expects soybean and soymeal imports to rebound by 10% to 600,000 tonnes and 11% to 495,000 tonnes respectively in 2003-04. USDA also reported that The United States replaced Argentina as the top soybean supplier with a 37% share of the Malaysian soybean import market. According to USDA, the current avian influenza (AI) outbreak in the region has affected consumer confidence and poultry consumption within Malaysia has fallen by around 30% temporarily. Although Malaysia is still declared free from AI, poultry farmers are reducing poultry production in order to avoid an oversupply situation. According to an industrial analysis, the impact should be short-lived since the consumers’ concern is fading away, the release said. Currently U.S. soybeans and meals have complete access into the Malaysian market. All import tariffs have been removed for many years. In addition, USDA says Malaysia has sound infrastructure (such as ports, rail and road networks and storage facilities), encouraging the bean trade flow from the United States. As for the Malaysian biotech regulations, the Cabinet has approved the Biosafety Bill. This legislation has been in the drafting stages for more than four years and has been the subject of extensive interagency meetings within the Malaysian Government. Due to the Malaysian Secrecy Act, the details of these bills and the internal debates are not publicly available. The Bill is to be tabled when the Parliament next convene after the next General Election to be held on March 21, 2004. Soy Complex Mixed On Better Than Expected Crush And Exports The soy complex closed mixed March 25. With the Census crush at the high end of estimates, the low oil stocks indicate much stronger than expected domestic usage for oil. U.S. export sales were better than expected with Mexico, Indonesia and China good buyers. However, the sales and crush pace remains too high and threatens to drive ending stocks below the current USDA projection at 125 million bushels; already a 27-year low. The focus of attention in the early part of this week is positioning ahead of the March 31 USDA reports on planted acreage and for March 1st stocks. May bean futures closed up $1.84, finishing at $377.91 July was $0.09 lower, closing at $373.59 and August lost $2.20, ending at $362.29. May meal was up $2.09, closing at $352.41; July was $2.54 higher, finishing at $350.64; and August increased $0.77 ending at $338.96. May oil closed $4.41 lower to finish at $742.95; July was down $4.19, closing at $738.32; and August lost $1.54, ending at $735.90.
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