January 15, 2007
Brazil soy market eyes premiums, expects big week ahead
Friday's (Jan 12) mega spike in international soybean prices put farmers and traders on the sidelines to negotiate soy premiums with expectations for booming business next week.
Brazil soy premiums plummeted Friday from 20 cents over the July soybean contract on the Chicago Board of Trade to 6 cents over the July CBOT, according to traders.
As premiums declined, farmers and their brokers spent much of the afternoon hours trying to determine what the premiums would be before finally settling in on a price, brokers and traders said.
"We expected more selling but once the premiums started to collapse everything stopped," said a trader at
Soy prices rose to well over US$7 a bushel for March and other forward contracts following a report Friday from the US Department of Agriculture that US corn production and ending stocks will be lower than previously thought. The new forecast put corn stocks at 752 million bushels compared to 1 billion at this time last year. The drawdown is due to corn ethanol demand in the US. Corn futures soon rose and took soybeans with them.
Meanwhile, total corn crop output was revised downward to 10.5 million bushels compared with 10.7 million a month ago.
"This is just the beginning. We expect prices to hit US$7.50 for May in the weeks ahead," said a trader at a US multinational in Sao Paulo.
"We won't see the reaction to Friday's price increase until Tuesday," the trader said. The market is closed on Monday in observance of the Martin Luther King Jr holiday.
"When prices rise quick like this, producers step back to figure out the premiums they can get from buyers. Next week should be a party if prices maintain," said Steve Cachia, a market analyst with brokerage firm Cerealpar in Parana state.
"That May will hit US$7.50 soon will come as no surprise at this point," Cachia said, basing his analysis on the latest US forecast of a smaller soybean crop. The USDA said 2006 production was 3.18 billion bushels, down from trade estimates of 3.23 billion and down from the November USDA estimate of 3.2 billion, as well.
Brazil is the world's no. 2 soy producer and exporter behind the US.
