May 15, 2006

 

Brazil includes soy in government purchasing programme

 

 

Brazilian Agriculture Minister Roberto Rodrigues said in a surprise move Friday (May 12) that soybeans would now be included in the government private options programme (PROP) and will be part of the government auctions as early as next week.

 

Soy has never been part of the government's buying programmes.

 

Through the PROP programme, the government essentially pays for the premium costs of the options contract purchased by the grower to sell soybeans.

 

Rodrigues said the government will offer 2 million tonnes of soybeans in the first auction, for which the date will be announced next week.

 

Auctions will be held weekly in 2006 until a total of 15 million to 20 million tonnes is sold, Rodrigues said.

 

Risk premiums for the PROP auction will vary between 1.50 Brazilian reals (US$0.72) per 60-kilogramme bag of soybeans and 6.00 reals per bag. Total federal support for soy in the PROP options programme is earmarked at 1 billion reals.

 

Farmers were surprised and pleased by the move Friday, but said the current risk premium would unlikely cover the cost of production because local market prices for soybeans in the centre-west are too low.

 

Soy grower Adilson Jacinto said industrial buyers pay 15.00 reals per bag in his region of Mato Grosso, while his production costs average around 24.00 reals a bag. If auction prices went for 15 reals and a risk premium was closed as high as 6.00 reals, that would still be less than production in most states in the centre-west.

 

Thousands of protesting farmers in the centre-west have closed transport routes in and out of the state, making soy deliveries impossible in Mato Grosso and Mato Grosso do Sul. Farmers met with Rodrigues this week to discuss extending debt payments for another three years.

 

"No doubt, this package is a step in the right direction, but a lot of the farmers have sold already. We are protesting because we are worried about the future," said Celso Saltarelli, president of a farm association in Mato Grosso do Sul.

 

Meanwhile, some of Brazil's soy traders said they will spend the next few days studying the PROP programme.

 

"We don't know how this is all going to work out yet, so we can't say if this is going to help the soy trade or not," said Thiago Simon, a soy buyer at Sperafico Agroindustrial, a mid-sized soy crusher.

 

"I doubt this will stop the protests, but it's an impressive effort by the government to support soy farmers. This should help them sell soy," said Helio Sirimarco, a consultant at soy brokerage firm Ativa Corretora in Rio de Janeiro.