Biodiesel, feed revive Brazil soy crush investment

By Inae Riveras

SAO PAULO, Nov 27 (Reuters) - Rising demand for feed and the expectation of a growing biodiesel market in Brazil are encouraging the soybean crushing industry to invest in new plants after several years of slow growth, analysts and industrial officials said.

U.S. giant Cargill Inc has plans to build a processor unit in Mato Grosso state, which would begin operating in 2009. Bunge Ltd (BG.N) also confirmed it intends to set up a new crusher in the same state.

Several companies, including Cargill and Bunge, had to shut down soybean crushing units in the recent years due mainly to poor processing margins. Profit in crushing has been low during most of 2007 but perspectives are improving.

"What changed dramatically the situation was the link between soybean and energy. All these new projects take into account the biodiesel potential," said chief trader Renato Sayeg at Tetras Brokers in Sao Paulo.

Brazil will blend 2 percent of biodiesel into all diesel fuel sold in the country beginning January 2008. The mandatory mix will then increase to 5 percent by 2013.

"Right now we have overcapacity problems in the biodiesel industry, but in the long term all these soy crushers can be potential soyoil suppliers of raw material for the biofuel," said analyst Leonardo Sologuren at Celeres consultants.

Growing demand for feed in Brazil, to attend the booming poultry and pork industry, also contributes to a brighter situation for crushers in the near term, Sologuren said.

Brazil's poultry production rose 10 percent from January to October, compared with the same period in 2006, to 8.4 million tonnes. Pork production is expected to reach a record 2.9 million tonnes, up 3.5 percent from 2006, analysts AgraFNP said.