DOW JONES NEWSWIRES

  Brazil's oilseed sector is experiencing a relatively prosperous period thanks
to high international prices and good overall climatic conditions, according to
a U.S. Department of Agriculture attache report posted Friday on the Foreign
Agricultural Services Web site.

  Farmers produced a record soybean crop of an estimated 60.1 million metric
tons on 21.7 million hectares, 1 million tons more of soybeans on 4% more area
than last year. Brazil's overall soybean yield, nearly identical to last
year's, is expected to reach 2.8 tons per hectare. Less occurrences of Soybean
Rust contributed to this year's positive outcome. Production and area are in
2008/09 projected to increase by 7%, increasing production to 64.3 MMT.

Executive Summary

  Brazil ranks as the world's second-largest producer and exporter of soybeans
behind the United States.  The status of being a "new agricultural frontier"
gives Brazil an edge in the soybean business, since other world soybean
producers such as the US and Argentina face limitations, lacking available land
for expansion, especially with corn area expansion taking place due to growing
ethanol production.

  In 2007/08, soybeans will make up nearly 50 percent of Brazil's total grains.
 Post projects that farmers produced a record 60.1 MMT of soybeans on an area
equivalent to the 2003/04 season, with yields of nearly 2.8 tons per hectare.
The Brazilian government's projections are for 59.5 MMT with a yield of 2.8.
However, several factors contribute to the continued lukewarm financial state
of farmers.  Although CBOT prices were at historic highs during the growing
season, timing was everything for producers this year.  Up to 70% of Mato
Grosso farmers sold their crop before the CBOT price rally when prices hit $16
per bushel; and sold at or below $12.  Only 20% of farmers sold their crop with
$16 per bushel prices.

  The other major negative factor for farmers in Brazil and elsewhere is the
rising cost of inputs.  As the price of soybeans rises, input costs
concurrently rise.  Fertilizers and herbicides have increased about 75% over
the course of the season.  So, in spite of the season's high international
soybean prices, earnings were not what they could have been, and farmers
continue to carry debt.

  High international prices and a good 2007/08 harvest are expected to
stimulate a considerable area increase next year.  Although farmers are still
carrying debts, the extension and rollover of debt, which was announced by the
Brazilian government in April, will be an important factor in the 7% Post
projected increase in area to 23,200 hectares.  This would equal a complete
recuperation in area lost during the 2006/07 season (surpassing the area in
2004/05 by 400,000 hectares).  The North and Center-west should experience the
majority of the area growth, and our estimate is that Mato Grosso, Maranhao,
Piaui, Tocantins, and Western Bahia will experience highest growth relative to
this year's area.  Corn prices will also affect soybean area, and summer corn
planting in Brazil should continue to rise modestly.  A return to more soy and
less corn planting in the US this year is expected to impact what are already
historically high Brazilian corn prices.  In addition, some shifting from soy
to sugarcane should continue to occur.

  Brazil has the technological conditions and area available to become the
largest oilseed producer in the world.  According to local agricultural groups,
there are still 90 million hectares available in Brazil without causing
deforestation.  Nevertheless, farmer groups in Brazil complain that
agricultural policy must change in order for Brazil to take the lead in soybean
production.

Economic Overview

  President Lula and his economic team have implemented orthodox fiscal and
monetary policies and pursued many necessary reforms.  Brazil's external
accounts have improved substantially over the last four years.  GDP growth was
strong in 2007 at 5.4 percent,  its strongest since 2004.  Market expectations
are for 4.7% growth in 2008. Brazil has experienced booming exports, healthy
external accounts, low inflation, decreasing unemployment and reductions in the
debt-to-GDP ratio.  Buoyed by exports and investment inflows, the Real has
remained at relatively appreciated levels, allowing the government and
businesses to pay down external debt, although many in agriculture and in
industry complain the exchange rate is making Brazilian exports less
competitive.  The government pre-paid its IMF obligations, its last remaining
rescheduled Paris Club obligations, and retired the last of its Brady bonds.
This removes from the books all restructured debt associated with Brazil's
late-1980's default.  Based upon the improving external debt dynamics, Fitch
IBCA upgraded its credit rating on Brazil's sovereign debt in February 2006, to
BB (two notches below investment grade).

  The public sector net-debt-to-GDP ratio is on a downward trend but remains
high, at about 42%.  Real interest rates also are declining, but remain high.
Analysts believe that reducing interest rates will require reductions in the
government's borrowing requirement, reform of the financial sector and of the
judiciary.  Income and land distribution remain skewed.  Investment and
domestic savings are low, although growing.   The informal sector constitutes
between 35 to 40 percent of the economy, in part because the tax burden (nearly
36 percent of GDP) is high by comparison with other emerging markets.
Sustaining high growth rates in the longer term depends on reforms to improve
productivity and increase investment, including fiscal reform, tax reform and
labor code reform.

Production
2006/07 Crop Situation

  Crop conditions in Brazil were very good with the exception of the extreme
South of Brazil in the states of Rio Grande do Sul and Santa Catarina.  La Nina
did not have the negative impact on Brazil that was expected before the season
started.  However, it made enough of an impact in Rio Grande do Sul, Santa
Catarina, and Mato Grosso do Sul for Conab to decrease its total production
estimate by several hundred thousand tons in early May.

  Post's forecast remains at 60.1 MMT on 21.7 Million Hectares.  Lower yields
in the South were balanced out by better-than-expected results in Mato Grosso.
Soybeans were planted anywhere from 8 days to one month late, which brought two
major consequences.  The positive effect was significantly less soybean rust,
and the negative has been a very wet harvest, especially in the state of Mato
Grosso.  Although there was some concern in the press about losses in Northern
Mato Grosso, actual losses are minimal and the result of the high humidity in
the region is a compromise in bean quality.

Record Prices but Marginal Profit

  With respect to Southern Brazil and other areas closer to ports, although
losses were greater, margins will certainly be higher due to lower
transportation costs.  Transportation costs in Mato Grosso are estimated to
total up to half of farmers' total costs in this state, especially in the
central producing area of Sorriso/Lucas do Rio Verde/Nova Mutum.  These are
notably the largest soy-producing counties in Brazil.

Rust

  It is now without question that losses this year due to soybean rust are much
less than in previous years.  Soybean Rust, which was responsible for more than
$10 billion in damage over past crop years, has shown continual signs of
reduction in Brazil, and this year's production losses are estimated at 25%
less than last year's.  According to Embrapa, the number of breakouts through
April 2008 was at near-lowest levels lowest since 2002 at 2,200 cases.  At the
same time last year, there were 2,900 cases registered.  This year, no cases at
all were registered in November.  January was the month when the most number of
rust breakouts occurred.

  There are two main reasons for the diminishing number of breakouts.  State
laws prohibiting farmers from planting soybeans for a 90 day fallow period
(vazio sanitario), to keep soybean rust from spreading in the off-season, have
helped tremendously with the control of rust.  The laws also require spraying
soybean plants that grow wild in the off-season, in addition to the prohibition
of second-crop soy.

  The La Nina weather phenomenon has also helped moderate the rust situation.
Due to less overall rainfall, which also arrived later than normal, the disease
has not been able to spread as easily.  In Bahia, which was the state with the
most cases in 2006/07, due to the drought situation, has had no cases
registered this year.  In Mato Grosso there are more registered cases this year
than last year, but rainfall has also picked up in the state and technology
there to detect the disease is improving.  Soy fields in Mato Grosso do Sul
state suffered the most with Rust this year, with 550 registered cases.  Parana
registered more cases than Mato Grosso do Sul, but suffered fewer losses due to
better management.

  According to Brazil's leading rust expert, Jose Tadashi Torinori, rust
prevention this year has been more efficient, due to the fact that growers are
avoiding losses at all costs due to the high value of their soybeans.  He
believes that the increased use of generic fungicides has lowered spraying
costs for farmers by 10-15 percent.

  On the other hand, other fungus-based diseases have been on the rise,
including Rhizoctonia solani (mela da soja) in Mato Grosso, and Sclerotinia
sclerotiorum (white mold or mofo branco).  These fungi are costing producers in
affected regions about 2-3 60 kilo bags of soy in fungicide (or up to 5% of
total production value).

Rust-resistant Soy Ready for 2008/09 Crop Season

  (MORE TO FOLLOW) Dow Jones Newswires

  05-30-08 1559ET

  Copyright (c) 2008 Dow Jones & Company, Inc.

15:59 053008

15:59 053008
  Soybean exports for marketing year 2007/08 concluded in January at 23.7 MMT,
below the 24.7 MMT that were moved last year.  Due to this reason, Brazil will
stay in its position this year as the second-largest world soybean exporter
behind the US.  China continues to import a larger and larger percentage of
Brazil's exports.  Exports to Europe declined in 2007/08.  Soy meal and oil
exports picked up slightly as the world demand of food grade oil and animal
feed continues to increase. Soymeal and soyoil exports both increased about 5%
in 2007/08.

Transportation

  Soybean farmers continue to pay a high price for transportation due to rising
global energy prices.  Farmers in the Center-West area of Brazil, the heart of
Brazilian soybean country, have the most to be concerned about since they
transport their product the furthest to port. In addition, the great majority
of transportation is done by truck.  Brazil's relative low production costs
vis-à-vis the U.S. and Argentina would be a tremendous advantage if not
for the high cost of transporting their product to port.  Most soybean farmers
in Mato Grosso will receive just over half the price of their soybeans at port
because the other half is spent transporting their soybeans by truck on poor
roads to ports 1500 miles away at Paranaguá and Santos. New, although
limited infrastructure created in the last few years has provided options for
transport out of the Brazilian Midwest.  The Madeira/Amazon river outlet where
barges move soybeans out on the Madeira River to the Amazon is now being used
as an alternative for farmers in Western Mato Grosso whose soybeans travel by
barge from Porto Velho, Rondonia.  This route is used primarily by Maggi group
soybeans, which move through their port at Itacoatiara (State of Amazonas).
Beans from Pará and Northern Mato Grosso are frequently shipped further
upriver via the Cargill port in Santarem, Para.

  The Northeast Transportation corridor is becoming more strategic due to the
growth of soybean production in the region.  A rail line from the western
border of the state of Maranhão connects with the port of Itaquí.
This rail line also connects with the Carajás terminal, just north of
Redenção, a major soy-producing area in the neighboring state of
Pará.  In addition, the North-South Railway is expanding, currently
connects Itaquí port with Araguaina, Tocantins but is planned to expand
southward to Goiania, Goiás by 2012.  The most important development for
the Northern Corridor will be the completion of Tegram grain terminal at
Itaquí which will provide the necessary infrastructure for grain
shipments.  A strong rate of growth in the region over the past 2-3 years of
both production and processing of soybeans indicates that this port will be a
more widely used option for exporters in the future.  Itaquí not only has
room to expand, but is the deepest natural port in Brazil.

Biodiesel Production

  Under current legislation, the potential market for biodiesel was estimated
at 840 million liters per year for 2006 and 2007, and the projection is for 1
billion liters per year between 2008 and 2013; and 2.4 billion liters per year
as of 2013 to comply with the current legislation.  The main deterrent to the
development of Brazilian biodiesel is high international soybean prices, making
production unviable.

  Biodiesel production began with 6 production facilities in 2005, with
estimated production of 40 million liters.  Currently, there are 7 biodiesel
refineries operating in Brazil in Minas Gerais, Pará, Piaui, Mato Grosso,
Sao Paulo, Rio de Janeiro and Paraná.  In order to produce biodiesel,
investors are required to have authorization from National Petroleum Agency and
to be registered at the Federal Treasury.

  In spite of the modest level of current production, several new refineries
are currently in development and should substantially increase biodiesel
production in the near future.  The Mines and Energy Ministry reported 22 new
projects in progress and total investments over $ 286 million.  Industrial
capacity is expected to reach 1.7 billion liters in 2007, versus an estimated
730 million liters capacity at end 2006.  Because of this rapid rise in
capacity, the Brazilian Government has been studying the possibility of raising
the mandated blend to five percent even before 2013.  The following table shows
the breakdown by state for the projected industrial capacity for biofuels
production by end-2007.

  The most commonly used process to produce biodiesel is transesterification.
It is a chemical reaction between a vegetable oil or animal fat and ethanol or
methanol in the presence of a catalyzer.  The reaction produces biodiesel and
some byproducts such as glycerin and meal and others, which add value to the
biodiesel chain.

  The MME reports that approximately two thirds of the Brazilian biodiesel
production utilizes soybeans as the raw material, followed by castor (25
percent of total production), and animal lard.  Biodiesel produced from
soybeans in the Center-Western region of Brazil results in the cheapest cost
(40 cents per liter) when considering only production cost of the raw material.
 When considering purchase cost of the raw material, the use of cottonseed in
the Northeast resulted in a cost of production of 33 cents per liter.