March 8, 2006

 

Brazil losing out to US soy market as premiums rise

 

 

International soy buyers are turning to the US instead of Brazil as premiums maintain near-historic highs, analysts and traders said.

 

"Prices are simply better in the US for soybean exporters than they are here," said Fernando Muraro, a soy analyst at AgRural, an agriculture market consultancy.

 

"There's no momentum here. The soy market is very weak," Muraro said.

 

Premiums over the same period last year were five to 10 cents below May contracts on the Chicago Board of Trade. Today, sellers are asking for 30 cents over the CBOT May contract and buyers are willing to pay 22 cents, according to Alianca Corretora, a brokerage firm in Sao Paulo.

 

On Tuesday, the CBOT May soybean contract closed down 10 1/2 cents at US$5.90 a bushel.

 

Traders and market analysts have joined soy farmers in their growing pessimism of the Brazilian soy market going forward.

 

For starters, US prices are roughly US$228 per tonne, considering premium prices for soy coming out of regions closer to the Gulf of Mexico. In Brazil, prices are closer to US$230, said a soy buyer.

 

"Brazil is about to harvest a lot of soybeans. They'll also harvest corn around the same time. Corn is hurting because bird flu has hurt chicken exporters that buy cornmeal. So farmers are going to store the corn, but they're not going to have the space to store the soybeans and they'll get rid of it at any price," the buyer said.

 

"I see an excess of soy in the market come April, leading to falling prices and making it even harder for farmers to pay their bills," the buyer said.

 

Muraro agreed. He said that sales are coming in at small volumes, mostly by farmers who have short-term debts to pay, from salaries to taxes and harvest costs.

 

Right now, the soy belt state of Mato Grosso is harvesting an estimated 16.4 million tonnes of soybeans. But, the country's largest producing state is currently selling below production costs as freight prices start their traditional annual spike upwards as demand for trucks increases in the center-west, said Tiago Simon, a buyer at Sperafico Agro-industrial, a soy crusher in Mato Grosso. Sperafico normally buys about 18,000 tonnes of soybeans per week. So far they have not made purchases.

 

Foreign exchange has also been a downer for Brazil's soy producers and soy exporters since December. The dollar is currently worth 2.16 real, and is trading near five-year lows.