The Brazilian real remains strong and is now trading at 47.19, nearly 100% higher than 2003-04. So the $8 U.S. soybean market doesn't add up to many reals.

High interest rates and carryover operating debt. These two factors continue to drain current profits, and the liquidity that farmers need to clear new land. Many farmers who lost money in 2005 and 2006 are just trying to get current on all debt at the bank. Banks will work with profitable farmers, but limit debt for future growth.

The trap of “green beans.” Almost all Brazilian farmers sell ahead 40-80% of their new-crop soybeans (green beans) and use that contract to secure credit. This means a lot of soybeans were sold last fall (their planting season) ahead of the rally in soybeans. With 40-80% sold, the farmers only have 20-60% to sell at today's higher prices.

High price energy. When I was in central and northeast Brazil in February, diesel was at $4.25-4.50/gal. This reduces current profits and makes farmers reluctant to take on more new acres. This high fuel price along with the cost of putting lime and fertilizer on newly cleared land limits the clearing that will occur next growing season.

Wide basis levels. The rally in the Chicago Board of Trade (CBOT) futures market has created windfall profits for many U.S. farmers who held onto the 2006 soybean crop. As the CBOT soybean market has rallied, basis levels have widened out in Brazil to $1.80-2 under the CBOT futures market.

The most important reason Brazil will not have any significant increase in 2008 is the long delay of getting new land into production. If you clear land this crop year (2007-08) the first crop you can plant will have only 50% of normal yield potential and will not be harvested until February-May of 2009. The first year that you will get 80-100% of normal yield potential is in February-May of 2010.

Will the global economy slow down? If so, then demand for soybeans and soybean products will drop as well. One of the positive factors for commodity prices since 1999 has been the huge growth in demand from expanding consumer markets in China, India and almost all of southeast Asia.

Will more Brazilian acres shift out of pasture cotton and soybeans? If so, then additional soybeans will be available without bringing new land into production. I don't see that happening at the current price ratio. What I do see is a slight increase in soybean acres in the northern areas of Brazil to offset increased sugarcane acreage and lower soybean acres in central Brazil.