January 24, 2007

 

Brazil soy farmers bullish; traders await Bush's speech

 

 

Brazil's soy farmers are bullish this week as prices continue their upward climb on Tuesday (Jan 23) following news that US President George W. Bush is expected to talk about increasing ethanol and biodiesel consumption in his State of the Union Address Tuesday evening.

 

As a result, farmers expect prices to rise once again in the short term and were more inclined to buy into one of the last government-run soybean auctions than fix prices with trading houses.

 

"Traders are spending their time trying to convince farmers to sell, but the general consensus is that nearby soybean prices are going to rise, maybe even by as much as 30 cents," said Fabio Meneghin, a consultant for Agroconsult.

 

"I'm hearing that Bush's speech on ethanol is already priced into the market. But what it does mean, fundamentally, is less soy in the US and more corn in the future," Meneghin said.

 

Market expectations are for the US--the world's leading corn and soy producer--to plant corn over some of the country's soy fields in order to increase ethanol production.

 

"We have a promising market ahead, no doubt, especially if there is any news that says the US will start planting less soybeans," said Rui Prado, the president of the Mato Grosso Soy Farmers Association.

 

According to FC Stone, a risk management firm, some 40 percent of the 2006/07 soy crop has been sold at this time. Others have put the number higher.

 

"We are looking at 50 percent of this crop sold to the market because of these prices," said Maria Amalia Tielone, a soy market analyst for AgRural, another consulting group.

 

She said farmers in north Mato Grosso were active in Tuesday's government soybean auction. In the auction, farmers dispute for the right to receive a subsidy over the spot price of soybeans, which the government put at 22.50 Brazilian reals (US$10.38) per 60-kilogramme bag. Some 44 percent of the 1 million bags of soybeans offered were sold Tuesday. Winning bidders will be allowed to sell their soybeans for BRL3.08 over the strike price, or BRL25.58 per bag. For farmers in northern Mato Grosso, where most of the bidding was done, that price beats the market rate of BRL23.50 for soybeans.

 

"This is why we are holding out for Chicago," said Prado about soybean prices on the Chicago Board of Trade. Soybean prices were trading around US$7.25 a bushel for the March CBOT in early afternoon trading. "The foreign exchange rate is still horrendous, premiums are going negative now and so we are dependent on Chicago to cover costs (in the centre-west)," Prado said.

 

Currently, the dollar is worth BRL2.13. The good news is that the exchange rate is much less volatile than it has been in the past. Farmers planted in September with the dollar between BRL2.20 and BRL2.15.