Five percent increase (or less) in Brazilian soy acreage likely, unless fertilizer prices can be brought down in Brazil.

Implications: Just like this time last year, traders in Chicago may believe that Brazilian farmers are poised to significantly expand soybean acreage, as they have moved prices above $15 per bushel.  However, just as they misjudged them last year, they may be doing it again, as fertilizer prices have doubled, and have brought potential net returns on Brazilian soy back down enough that a significant expansion is currently unlikely, unless fertilizer costs can be reduced, or prices go significantly higher, very soon.

Analysis: Thankfully, soybean prices are finally higher in Brazil.  At harvest last year, we were selling beans in Tocantins state for 28 real per sac ($5.80 per bushel).  Last week, Granol, a Brazilian biodiesel company with a buying station in our area, was paying 44 real per sac ($12.50 per bushel).  So the good times are rolling again on the soy farms in Brazil then?

Unfortunately, the profit party has been spoiled by fertilizer costs, which represented 50% of our $240 per acre crop budget last year, and have doubled in price for this next crop, pushing our expected cost-per-acre up in the $430 per acre range.  If we budget a 43 bushel per acre average yield (not overly conservative on our soils that are only in their first to fifth year of production), and if we could sell them for $13 per bushel, we MIGHT end up with about $120 per acre to cover land and management.  Not exactly windfall profits.

Accordingly, most producers we talked to, prior to this last run up in prices, were not planning to expand soy production at all.  Fertilizer costs were listed as the main reason.  The current price rally may change some minds on that, but I don't expect it to add more than 2-3%, so my current expectation is still for a 5% or less increase in soy acres in Brazil. 

Time is running short.  Decisions need to be made now, in order to allow time to get all the inputs bought, paid for and delivered.  Lime, if needed, needs to be applied yesterday, so future price increases in Chicago may not have much more effect on farmer's plans in Brazil.

The government of Brazil's saber rattling over fertilizer costs is more than likely simply trying to force this industry to transfer some of their very generous margins to their farmer/customers.  This story: Brazil Vale Speeds up Projects Linked to Fertilizers
is proof that the government's tough talk is having some affect.  Bunge's very profitable fertilizer business in Brazil may be affected by these actions, but they will be affected by lower-than-expected soy plantings to an even larger degree, if indeed, that is what transpires.