As soybean farmers here finish up the last of their liming work in mid-August, there is a growing sense that the party is over.

The first half of 2004 brought huge Chinese demand and record prices. But then the Chinese turned back several loads of Brazilian soybeans due to the presence of fungicide-treated seed in samples, though the number of seeds found, supposedly, was below internationally accepted norms. It was clearly a move to knock prices back down to earth, and it worked.

In the face of dropping prices, farmers here are looking at higher costs. The Asian rust epidemic means that, according to Brazil's Ministry of Agriculture and the National Vegetable Defense Association, Brazilian farmers are likely to spend up to 15% more on fungicides in this upcoming season, bringing the tab to some $400 million.

Meanwhile, one study shows average fertilizer costs have shot up 27% over last year due to a weaker Brazilian currency, higher petroleum costs, which have contributed to increased freight costs, and other factors.

The party may be over, but many Brazilian farmers remain optimistic. Based on fertilizer purchases, the Brazilian planted area is likely to increase, if only slightly, from last year.

One factor that's helping slow the cost increases is the government's repeal this year of the hated PIS/Cofins value-added taxes for fertilizers — a cost savings to Brazilian farmers of about 9%.

As if this weren't enough, the biotech issue in Brazil remains unresolved.

As we went to press, the Brazilian Senate was considering a bill which would streamline the biotech approval process by taking most of the politics out of it and leaving the approval decision to a panel made up mostly of scientists.

That bill hasn't passed yet, though the government has released big parcels of interest rate subsidy funds to the regional branches of the Bank of Brazil, which is now considering farmers' applications for loans to buy tractors, equipment, inputs and seed.

Once the Senate version of the biotech bill is passed, it will have to go back to the Brazilian House, where the two bodies will hammer out a compromise law.

Many observers are betting the wheels of the legislative process won't turn quickly enough for the bill to be passed and signed by October planting. If not, the president will likely have to issue a third temporary decree allowing the production and sale of biotech soybeans here.

Which brings us back to China. The lack of a resolution on biotech may have helped bring about the China problem.

At least one agricultural banker here speculates that the reason there were seed beans in those loads rejected by China was because some producers in Brazil bought conventional seed before last year's decree made planting biotech seed temporarily legal.

After the decree was issued, some producers may have thrown their old conventional seed in with commodity beans and bought Roundup Ready seed.

Given the legal issues, it would be hard to verify such a theory. But if it were true, it would mean Brazil's lack of clarity on the biotech issue could have helped shut down the party early.

IS BRAZIL A DEVELOPED COUNTRY?

For purposes of World Trade Organization (WTO) negotiations, Brazil should not be considered a “developing country,” according to Agriculture Undersecretary J.B. Penn.

“It makes absolutely no sense for Brazil to be treated as a developing country when it has a first-world agriculture system,” he says.

Brazil is an integral part of a group of developing countries that are pushing for rich countries to give up their agriculture subsidies in the WTO talks. Brazil recently won a WTO case arguing that U.S. cotton subsidies were illegal under trade rules and it also won a preliminary ruling that European Union sugar policies were illegal.

Developing countries are given special considerations under WTO trading rules to encourage economic development.

PARAGUAY TO APPROVE BIOTECH SOYBEANS

To some extent it's a moot point since it's widely known Paraguayan farmers have been growing Monsanto's Roundup Ready soybeans for years despite a government ban, according to Doane's.

Paraguay will now approve them so that the practice can be even more widely adopted.