April 12, 2006

 

Brazil's soy market volume drops on weaker dollar

 

 

Brazil's soy volume was light Monday (Apr 10) and in early business hours on Tuesday as the US dollar continues its slide against the Brazilian real.

 

Many of the current sales are actually barters with fertiliser companies, with farmers selling bags of soybean in exchange for fertiliser purchases made early in the crop year, said Jaqueline Alves, a broker at Multisafra in Mato Grosso.

 

Roughly 35 percent of Brazil's 2005/06 soy crop was committed to sale as of Apr 7, according to AgRural. The number puts Brazil's soy sales on par with recent years, where about 37 percent was sold to local and international buyers at this time. "Let's see if Chicago helps today because otherwise there's going to be little business done in Mato Grosso. Very little deals being made right now," Alves said.

 

Soy futures on the Chicago Board of Trade were holding around US$5.60 a bushel for the May contract on Tuesday.

 

"Nothing is helping. Not Chicago. Not the dollar. If Brazil does not sell 200,000 tonnes a day that's very little volume and I doubt we'll get that today," said a trader at a US multinational in Sao Paulo.

 

Brazil is currently harvesting the 2005/06 soy crop, so significant supply is rolling into Brazilian soy crushers and ports, thanks to European demand over the last few days, and premiums at 25 cents over the Chicago Board of Trade May contract. Normally, Brazilian soy premiums at this time of the year are in negative territory, said Fernando Muraro, a soy analyst at market research firm, AgRural.

 

"Premiums are good, and that's helping volume," Muraro said. "Volume is continuing, but it's very sporadic and nothing to brag about. The market is not stopped."

 

Premiums have largely remained in the 22 cents to 25 cents per bushel range for the past five business days, according to brokerage firm, Alianca. Port prices fell in Paranagua on Monday, to 26.60 Brazilian real (US$12.43) per 60-kilogramme bag, down 40 cents from Friday's price.

 

The dollar continued falling against the local currency Tuesday, hitting 2.14 real compared with Monday's close of 2.156 real.

 

"We have a delicate situation on our hands at the moment," said Anderson Galvao Gomes, a soy analyst at market research firm, Celeres.

 

"Volume is constant, but not expressive. Farmers are in debt and sell when they need to pay their bills, even though in states like Mato Grosso they are getting paid below production costs," Gomes said.

 

Production costs in Mato Grosso, on average, are 26.00 real per bag, with buyers willing to pay between 16.00 and 20.00 real per bag. Mato Grosso is the top soy producer in Brazil.

 

As a result, the consensus among Brazilian farmers and agribusiness in general is that soy growers here will surely reduce 2006/07 soy planting area by anywhere from 10 percent to 15 percent. Some see that as good news considering the US is increasing its soy area this spring, and last fall harvested a record 84 million   tonne crop.