April 19, 2006

 

Low Brazilian soy market volume attributed to break-even prices

 

 

Soy exporters and brokers expect very little volume to be moved in the local soy market this week as prices remain at break-even, or less, for soy farmers in the Brazilian soybelt states.

 

A rise in soy prices on the Chicago Board of Trade on Monday did little to entice farmers to sell. CBOT May soybean prices were up 1/2 cent at US$5.72 per bushel, as of 1630 GMT, while CBOT July was up 1 cent to US$5.86 1/4.

 

"It's the price factor at play. The soy buyers are not offering prices that cover the cost of production, at least not in Mato Grosso," said Jaqueline Alves, a soy broker at Multisafra.

 

In the north of Mato Grosso, Brazil's top soy producer, a 60-kilogramme bag is selling for 19.50 Brazilian reals, or US$9.15 per bag. Meanwhile, production costs range between 21 and 26 reals per bag, Alves said.

 

"There are associations in the north of Mato Grosso that closed the doors on 30 silos because of low prices. Volume is very light," said a soy buyer at Coimex, a soft commodities exporter.

 

Traders looking for a volume spike coming out of South America will have to look to Argentina rather than Brazil, said a trader at Coinbra, a subsidiary of Louis Dreyfus, as Brazilian soy premiums make the southern neighbour more attractive for the time being.

 

"Brazil's premiums are very expensive for our buyers. If you want soy volume today, you look towards Argentina," the Coinbra trader said.

 

Brazil's soy premiums for immediate deliveries rose two cents to 20 cents over the CBOT between Thursday and Monday. Premium prices for the May soy contract rose 1 cent to 25 cents over May, according to brokerage firm Alianca.

 

Paranagua port prices have also risen over the last two business days, to 27.20 reals on Monday, compared with 26.70 reals on Thursday, according to Alianca. Ports were closed for the Easter holiday on Friday.

 

According to Helio Sirimarco, some 4,000 tonnes were negotiated at Paranagua Port on Monday, with another 2,000 in Mato Grosso do Sul.

 

"It's going to be an uneventful week unless the dollar all of a sudden gains momentum," Sirimarco said.

 

Most soy farmers are not very well capitalised and need to sell in order to pay for debts and other costs, such as labour. However, in Mato Grosso, for instance, some 75 percent of the crop has already been sold, most of it in trade for warehousing space or fertilisers and other farm necessities.

 

Moreover, a Brazilian government decision to provide nearly 500 million reals to grain and oilseed farmers in May in emergency aid still depends on congressional budget approval.

 

But it does not appear that extra cash from the government, or a decision to roll over debts, will lead to drastic changes in the market because as it stands, without any aid packages arriving in the mail, soy farmers are still managing to store soybeans in silos instead of selling in any expressive volumes.