Sept. 13 (Bloomberg) -- Leonildo Bares, a soybean grower near the Amazon farming frontier town of Sinop, said he’s so confident prices for the commodity will stay near record highs that he’ll extend his crop to neighbors’ boggy cattle pastures.
Confined by Brazil’s crackdown on logging in the Amazon, the farmer talked his neighbors into growing soybeans on their cleared land and sharing the profit. Bares, whose 420-hectare (1,038-acre) farm in the center-western state of Mato Grosso extends on what was untouched rainforest in the 1970s, plans to boost planting to 650 hectares. About 1 million hectares of the state’s pastures, an area the size of Jamaica, probably will be converted to soybean crops in coming years, he predicts.
“The pastures of Mato Grosso can be turned into soybean plantations and probably will,” Bares, who’s also the president of Sinop’s farmers association, said in a telephone interview from the city. “Anyone with the knowledge and money who’s willing to come here and do it, can do it.”
South American farmers like Bares have become the counterpoint to the worst drought in the U.S. Midwest in 76 years as they sow record crops during a global shortage of the oilseed used as animal feed in Asia. Brazil, Argentina, Paraguay, Bolivia and Uruguay will boost output by 34 million metric tons to 148.5 million in the 2012-2013 season, more than offsetting a decline of about 11.5 million tons to 71.7 million in the U.S., the Department of Agriculture said yesterday.
“Everyone is hoping that the South Americans in general have a bumper harvest,” Sal Gilberte, who helps manage more than $100 million at Brattleboro, Vermont-based Teucrium Trading LLC, said in a phone interview. “They are going to plant every square inch with soybeans.”
Soybeans futures have jumped 45 percent this year on the Chicago Board of Trade, reaching a record $17.89 a bushel on Sept. 4, as the U.S. drought triggered concern that China-led demand will outpace supplies.
Brazil, which will surpass the U.S. as the top producer for the first time, is leading the South American soybean boom as growers next month start planting a record 81-million-ton crop, a 23 percent jump from the previous harvest, the USDA said. Most harvesting in Brazil starts in February.
Cargill Inc., the biggest U.S. agriculture company, built its $20 million Santarem grains loader on the Amazon River to receive shipments from places such as Bares’s home city of Sinop, a clearing in the Amazon that lies 1,600 kilometers (994 miles) from Sao Paulo.
In Argentina, where drought damaged the past harvest, soybean growers are also expanding into pastures as soil benefits from rain caused by the El Nino weather pattern this year. The country, which is the biggest producer after the U.S. and Brazil, is set to increase output 34 percent to a record 55 million tons, the USDA said.
“The world has become more dependent on Brazil and Argentina to raise soybeans,” said Douglas Carper, the principal of Omaha, Nebraska-based DEC Capital Inc., a commodity trading adviser and hedge-fund consultant.
Soybean growers in Paraguay, a country the size of Texas located southwest of Brazil, will turn vast cattle ranches in the country’s central region into crops, said Luis Cubilla, a researcher for growers association Capeco. The country’s next soybean harvest will double to 8.1 million tons, according to the USDA estimates. Neighboring Uruguay’s will climb 19 percent to 1.9 million tons.
Bolivian farmers, who don’t have to contend with Brazil’s stricter forestry laws, have been slashing trees to cash in on the soybean boom, Tito Choque, a farmer and representative of growers association Anapo, said in a telephone interview from San Pedro, an Amazonian town in the country’s southeast. The drive means output will rise 4.5 percent to 2.3 million tons, according to the USDA estimates.
The soybean shortage caused by the U.S. drought is so severe that China may have to cut consumption “to accommodate this loss in supply,” Jeffrey Currie, commodities research head at Goldman Sachs Group Inc., said in a Sept. 6 interview. The shortage has sparked fears of a repeat of the food crises between 2007 and 2008, the United Nations said Sept. 4.
China will continue to consume more meat and dairy products, defying an economic slowdown in the country, Christopher Langholz, a China-based executive for Cargill, said in a Sept. 3 interview.
South America can ease the shortage of corn and soybeans caused by the U.S. drought, Alberto Weisser, chief executive officer of Bunge Ltd., the world’s second-largest oilseed processor, said in a July 25 call with analysts.
The biggest challenge facing South American soybean exporters and their buyers is infrastructure that’s relatively insufficient and expensive. A lack of capacity at Brazilian ports may delay the delivery of the country’s bumper harvest to world markets, Hinsdale, Illinois-based agriculture consulting company Soybean & Corn Advisor Inc. wrote Sept. 5 on its website.
“One thing is the reality of supply and demand and the other thing is the perception of supply and demand,” Tim Andriesen, managing director of agricultural commodities at the CME Group, said in an interview in Sao Paulo on Sept. 11. “It will take months before the South American crop actually gets to the market.”
The lowest U.S. soybean inventories in four decades also means that forecasts for a South American harvest that is still being planted won’t allay concerns that supply will fall short of demand in coming months, DEC Capital’s Carper said. The shortage may cause soy futures to reach $20 per bushel in coming months, he said.
“We will not have enough U.S. soybeans left by the time we get to the start of South America harvest,” Carper said. “We have a long time to wait to solve the supply shortage.”
In Brazil, the expansion of soybean output is also limited by increasing restrictions on deforestation.
The government has forced traders such as Cargill and Bunge to embargo farmers who cleared forest to grow crops after 2005.
Fires and logging cleared 6,418 square kilometers (2,478 square miles) of the country’s rainforest last year, a swath of land more than five times New York city’s area, down from 7,000 in 2010 and about a third of the 18,165 destroyed 10 years earlier, according to data from Brazil’s Science and Technology Ministry. In the past 10 years, about 153,000 kilometers have been cleared, an area larger than Greece.
Brazilian lawmakers are set to vote this month on laws to grant an amnesty to overdue deforestation fines, while seeking to simplify the enforcement of new penalties. President Dilma Rousseff in May vetoed a proposal to reduce the area farmers are required to preserve, while lawmakers are under pressure from producers to maintain the reduction.
Bolivian farmers are waiting for the government to lift a ban on exports caused by a dispute over supplying the domestic market that has suppressed local prices and left silos operated by Cargill and Archer Daniels Midlands Co. with no room to spare, Choque said.
“We are just waiting for the government to empty the silos,” Choque said. “In this area there will be not even one ounce of poverty if people can take advantage of soybean prices.”
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