Drought knocks Brazil's soy stocks

- Last updated on GMT

Price rises for soy-related ingredients are still under pressure as
drought, high production costs and a strong real all impact soybean
production for Brazil's 2004-05 crop, writes Lindsey Partos.

The US department of agriculture expects Brazil's soybean production to be 54.5 million tonnes from 22.8 million hectares of plantings and an expected average yield of 2.5 tons per hectare.

The Asian rust epidemic knocked yield, although the disease did not affect yields to the degree previously expected, claims the USDA. Most injury to the current crop in Brazil is limited to isolated areas; with the exception of Rio Grande do Sul, where irreversible damage appears to be widespread throughout the state, reports the American Soybean Association (ASA).

Along with the US, Brazil is a leading producer and exporter of soybeans, used extensively in the food industry for a wide range of purposes. The soy business in Brazil represents about 32 per cent of Brazilian farm trade.

As health concerns continue to drive market growth for soy ingredients, the market has been enjoying strong year on year growth, despite tight supplies.

And vegetable oils are taking the lion's share of the oils and fats market in the US as food makers continue to turn away from animal fats in favour of vegetable alternatives.

Prices rose considerably in 2003 and 2004, reaching 15-year highs due to a squeeze in supplies, but despite a knockback in Brazil, soy stocks for 2004 -05 are expected to rise significantly on the back of improved harvests across the globe.

But despite some relief in stocks, concern over risk is still evident in the market. Futures appear to be significantly overpriced because of speculative ownership and concerns about risk, says the ASA.

May bean futures closed up $1.29 finishing at $229.09; July was $1.56 higher, closing at $231.02 and August gained $1.10 ending at $230.47.

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