Uruguay expects for this year a record export of grains and oilseeds, however prospects for the rest of the year are not too clear given abundant crops worldwide which will have an impact on prices.
According to the latest reports from the US Department of Agriculture the Mercosur summer crops will have their impact as will the winter crops in the northern hemisphere, which will demand a better structure of costs to remain competitive.
Corn stands out with a totally unexpected Argentine harvest estimated in 21 million tons with a yield over 8.000 kilos per hectare. Similarly a huge crop is expected in the US in the coming months, with stocks stable in spite of the growing ethanol industry.
For Uruguay this is a major challenge since domestic consumption is in the range of 300.000 tons and total production is expected to reach 600.000 tons. However there is still corn and sorghum from the previous crop and low quality wheat that will compete with the new crop.
So far Uruguay has managed to ship 50.000 tons but once the soy bean export season begins in mid April, “it’s hard to see the 135 US dollars per ton price remaining strong”.
Wheat is more complicated for Uruguay since global reserves are increasing and stand at 200 million tons, 60% higher than in the critical 2008. Similarly in the US with 27 million tons reserve which is three times 2008.
The 200 US dollars per ton price of the end of 2009, seems a distant chimera for 2010 and 2011, if no climate catastrophes happen, particularly in the southern hemisphere because Argentine farmers attitude towards official policies remains a big question mark, and so does its wheat production potential.
According to Uruguayan grain dealers it can be expected that local farmers will set aside wheat and barley and opt for soy, particularly first quality beans and not poor quality beans as a secondary crop following on wheat. Excessive rains (and phyto sanitary problems) will discourage Uruguayan farmers to repeat wheat in the same land.
Therefore in Uruguay 2010 is forecasted to be a year for soybeans.
According to the USDA Mercosur is expected to harvest a record crop of soy this March-April with Brazilian production reaching 67 million tons. “This will represent a huge test for prices since Argentina (53 million tons), Paraguay and Uruguay are also expected to have exceptional crops”, adds USDA.
So far the low reserves in the US have helped to keep the oil seed price bullish, but once the Mercosur full crop is confirmed the picture is expected to change. By the way the Argentina Cereals and Oilseeds Exchange as well as Oil World estimate the country’s crop in 55 million tons, an excellent harvest and considerably higher than in 2009, which suffered the full impact of drought and government export tax policies.
Prices for Mercosur farmers are estimated to be above 300 US dollars per ton of soybeans. But global stocks are expected to climb 40% over 2009 and should influence.
Therefore even when the summer crop prices are encouraging for Uruguayan farmers, this will not necessarily be the case for the next season, beginning with wheat in the coming months. With greater world reserves, competition will be tougher and an extremely sharp cost-equation will demand above average yields to enjoy a comfortable profit