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Drought spreads to Brazil, crop yields hit

March 20, 2012 at 4:45 PM   |   Comments

SAO PAULO, March 20 (UPI) -- Drought has spread from Argentina and Paraguay to Brazil and is hitting soy yields at a time of concerns that regional economic growth may suffer as pressures mount on commodity prices.

Argentine yields of soy were affected by drought and labor disputes in that country are making farmers and grain traders jittery. Drought caused widespread economic dislocation in Paraguay, which was also hit by cattle disease.

Analysts said drought-related developments in Brazil had led to lower yield estimates, slicing about 2.8 million tons off an original estimate of 67.1 million tons for this year's harvest. The revised estimates are subject to further review, said the analysts.

Soy oil has gained importance in the energy market as a feedstock for the booming international biofuels sector.

Soy produced by Brazil, Argentina and Paraguay accounts for about half the world's soy exports. Although current worries have caused spikes in prices and buoyed futures trade in Chicago, Latin America and elsewhere, underlying worries over the eurozone crisis and an economic slowdown in China continue to cloud the outlook.

Some analysts predicted a 10 million ton shortfall in Brazil's soy crop when compared with last year.

Brazilian traders watched with anxiety the growing labor disputes at Argentina ports that idled grain export terminals and threatened to put further pressure on global prices for corn, soy and what. The Latin America region is a major exporter to China, Europe, Africa and the Middle East.

Traders said lower crop yields would bring hardship to farmers and affect government tax revenue in Argentina and Paraguay.

The drought has caused political disruptions, more so in Argentina than in other Latin American countries. Relations between Argentina's government and importers soured after President Cristina Fernandez de Kirchner slapped new taxes on traders and refused to budge in the face of furious demands for change.

Fernandez also upset farmers' groups after ignoring demands for more emergency aid to drought-stricken areas of the country.

The latest potential political flash point was caused when the government refused to defer new legislation that importers denounced as punitive, restrictive and wrapped in red tape.

Further complications arose after trade partner Brazil, increasingly under pressure over drought damage to its own crops, objected to new Argentine rules coming into place. Argentina and Brazil have $30 billion-a-year trade.

Critics say the new rules that came into effect in February introduce more bureaucratic delays. Manufacturers said the rules would inhibit industrial production and growth as they would likely impede the flow of components, raw materials and other industrial inputs.

The influential Sao Paulo Federation of Industries in Brazil said the new Argentine import rules could affect 80 percent of Brazilian exports to the country. Drought damage to agriculture will further worsen that outlook, analysts said.

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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