This week's edition will focus on transportation, grain markets and costs of production in Brazil. I have been asked by two commodity investment groups to discuss my findings in Brazil. It's amazing how interested we are in this unknown production giant called Brazil. I have also been working diligently on the Beyond Agronomy website and would encourage you to visit us. You can check out past newsletters, links to production and management information, as well as our services at www.beyondagronomy.com. We are in the process of setting a target date to launch Beyond Agronomy News as a subscription service to farmers and industry personnel prairie wide.
About 80 percent of Brazil’s soybeans are trucked to market. Trucking distances can range up to 800 miles to market. Road quality is mostly poor and substantial portions of the country’s highways have dirt surfaces. The cost of upgrading these roads is staggering. For example, it would cost up to $1 billion US to upgrade highway BR364, which serves much of the soybean producing regions. Long stretches of this national highway are dirt, with washouts several feet deep and large enough to hold an entire semi-truck. Trucks bypass these washouts by simply driving through fields.
The railroad system consists of several short-lines serving southeast and northeast Brazil. With few exceptions, the railroads are in poor physical condition after years of neglect under government ownership. Even though it is modernizing, Brazil’s railroad system is likely to remain a limited capacity, high cost mode of transport for years to come. However, a possible joint venture among railroads might accelerate the rate of capacity improvements.
Some observers believe that the development of the three navigable rivers will solve many of the major transportation problems facing Brazil’s grain industry. The Rio Madeira offers the best hope for improving grain transportation because it is a free-flowing navigable river that is already in full operation. Nine-barge tows move up and down the Rio Madeira, each carrying 2,000 tons. The Madeira waterway has a capacity to move between 2 and 3 million tons yearly without investments in the river. Thus, the Rio Madeira has opened the new frontier in Mato Grosso to world soybean markets.
Ships originating grain on the Amazon must travel up to 1,000 miles east to reach the Atlantic Ocean. These ships must then travel approximately 2,000 miles west to reach the Panama Canal or steam south around the Cape of Good Hope. The distance from Brazil to Japan is approximately 13,000-14,000 miles, which varies with the port of origin.
The high cost of internal transportation and ocean freight to the Pacific Rim means that Brazil soybeans will have great difficulty competing with US soybeans in Asian markets. At the present time, almost all of Brazil's soybean exports go to Western Europe.
What was most evident on our drive inland was the huge grain handling facilities owned by Cargill, Louis Dreyfus, ADM and Bunge. There are smaller Brazilian owned grain companies as well and farmer owned cooperatives. Each company will have buying stations (elevators) around the countryside. At harvest, most of the soybeans move directly from the field to the buying stations or crushing plants.
Cotton has become a major crop in select areas of Brazil. Domestic and international buyers from major commodity and textile firms come to the area to purchase cotton directly from farmers. Buyers contract for transportation to textile mills in the northeast and south and also to ports for shipment abroad. Some of the larger farms will have their own gins.
Corn, rice and edible beans are sold to marketing intermediaries and commodity firm buyers that come into the area at harvest. Some of the larger farmers transport their product and sell directly to markets in Salvador or northeast Brazil. They use the back haul to transport fertilizer and other inputs.
High value crops such as coffee, coconuts, bananas, papaya and other fruits are sold under a variety of arrangements.
Costs of Production
There are many dealers and vendors of seeds, fertilizers, chemicals, limestone and petroleum products. The seed companies will typically sponsor field days and participate in seed plot trials and demonstrations. I recognized several companies like Monsanto, Syngenta, Arysta LifeScience (Everest), Bayer CropScience, Pioneer and many more.
The costs of production listed below are for GMO and non-GMO soybeans. I've included soybeans because it is the most significant crop grown in Brazil and one of the biggest threats to global oilseed production. One thing I'd like to note is that the EU is Brazil’s largest importer of soybeans and most important market. I was surprised to learn that only 10% of a farms seeded acres can be planted to GMO soybean varieties.
The numbers listed below are from the Mato Grosso region, which is currently the most expensive and competitive soybean growing region.
Cost of Production Analysis From Mato Grosso State
|Soybeans $/ac||GMO $/ha||GMO $/ac||Non-GMO $/ha||Non-GMO|
I was recently informed that the estimated yield in Mato Grosso is roughly 3.2 - 3.3 t/ha or 47- 49 bu/ac. This is an early estimate but probably fairly accurate as they have just begun to harvest the first of their 2007 crops. Last Thursday's price in Mato Grosso was around $192/ t or $5.22/ bu. That leaves a net return for GMO soybeans of $189.77/ha or $76.79/ac. The non-GMO soybeans bring in a net return of $173.32/t or $70.14/ac.
It is really interesting to compare the difference in transportation costs. If you follow the markets you will have noticed last week that soybeans were around $7.44/bu and not $5.22 as mentioned above. The difference in these two prices is transportation costs. In this example, farmers are paying $2.22/bu to transport their grain. Sure they may be low cost producers, but they lose on transportation. That works out to 30% of the value of their grain going straight to transportation costs!
Wheat: The long term and short term trend remains down. Non-commercial traders have added to their net long positions.
Canola: The long and short term trends remain higher. Canola prices tend to turn higher at this time of year.
Corn: The short term trend may turn lower while the long term trend remains up.
Soybeans: The short term trend may be turning sideways while the long term trend remains up.
Diesel: The short term trend remains down.
Natural Gas: The short and long term trends continue to turn upwards.
Canada Grains & Oilseeds Outlook - Ag Canada
For 2007-08, areas seeded to canola, durum, barley, corn and oats will increase in 2007 but area seeded to wheat ex-durum, flaxseed, and soybeans is forecast to decrease, as is the area in summer fallow. Although exports are projected to decrease, food and industrial use is forecast to increase significantly due to the strong demand for biofuel. Carry-out stocks are forecast to decrease slightly. World and Canadian wheat prices are expected to decrease as US and Australian growing conditions return to normal.
World corn and oilseed prices are expected to increase on support from the growing biofuel sector in the US and the EU. Canadian barley prices are expected to decrease due to significantly higher barley production in Canada and Australia. Canadian oat prices are expected to decrease, despite higher corn prices, as the significant increase in Canadian oat production decreases the premium for oats relative to corn in the US.
Canada Pulse & Special Crops Outlook - Ag Canada
For 2007-08, total area seeded to pulse and special crops in Canada is forecast to decrease marginally from 2006-07, as increases for chickpeas, mustard seed, canary seed and sunflower seed are more than offset by decreases for dry peas, lentils and dry beans.
Trend yields are assumed for both western and eastern Canada, as soil moisture reserves are good in most areas. Total production in Canada is forecast to decrease slightly to 4.37 million tonnes (Mt). Total supply is expected to decrease by 13% to 5.23 Mt, as lower carry-in stocks compound the decrease in production. Exports, domestic use and carry-out stocks are forecast to decrease due to the lower supply. Average prices, over all types, grades and markets, are forecast to increase for dry peas, lentils, dry beans, mustard seed, canary seed and sunflower seed, decrease for chickpeas, and be the same for buckwheat.
Sign-up for 2007-08 CWB Fixed Price Contract
Fixed Price Contract (FPC) and the full range of Basis Payment Contract (BPC) options begins February 26. Feed barley is now fully eligible for both programs. The enhanced FPC enables farmers to lock in a flat price for all their board grains. The BPC enables farmers to lock in a futures value and a basis at different times for their wheat, selected barley and feed barley. BPC sign-up on December 2007 futures has been available since September 2006. CWB Producer Payment Options can be used in combination with pooled payments for a balanced approach to suit any farm business.
NCBA Takes Position on Ethanol
The National Cattlemen's Beef Association has taken a stand on ethanol, one that injects yet another interesting angle into the growing debate over the alternative fuel. "Rapidly increasing prices for corn and other feedgrains have raised operating costs for cattle feeders over the past four months, which in turn has contributed to lower calf and feeder cattle prices," NCBA said in a press release.
Is Canada's Grain System Efficient?
When you look at the practices of top farmers a number of them are striving to get outside the current system. The way forward out of the farm crisis has got two modes to it. Certainly one is the farm business management aspect but the other aspect is the larger macrostructure. Particularly in the grain sector the system really is broken. The Canadian grain system is largely developed for the export of any commodity.
We are trying to compete globally in the marketing of commodities and we define commodities as a product on the market with the only distinguishing factor is price. Some of our large customers will buy only on price. That is really a race to the bottom. From the system's point of view we need to identify and recognize the huge opportunities that we have to market on the higher values side so we need some systemic thinking on restructuring the grain sector in particular.
Signing Long-term Emissions Credits Contracts Not Recommended Right Now
Farm Business Consultants is aware that several companies are offering farm producers their services as aggregators for carbon credits or emissions credits. However, we strongly recommend that you refrain from making any long-term commitments right now.
We have been doing extensive research into the claims being made by these companies and evaluating the real opportunities available to farm producers. We know that, even though these aggregators may want you to sign up today, they likely will not be in a position to sell any credits until the fall of 2007.
New Crop Peas At $5 A Bushel
More new crop prices are now available for growers to consider. Yellow pea contracts are available for fall delivery at prices of $5.00 bu. Current prices are higher than that - $5.50 or more per bushel. However, a contract price of $5 for peas is rare. In some parts of Saskatchewan, new crop feed barley contracts have been offered at $3.00 bu picked up on the farm.
Full Story: http://www.hursh.ca/default.asp
CWB Payment Schedule
2005-06 CWB Payments: See table: http://www.cwb.ca/public/en/farmers/payments/popups/2005_Dollars_per_bushel.jsp
2006-07 CWB Payments: See table: http://www.cwb.ca/public/en/farmers/payments/popups/2006_Dollars_per_bushel.jsp