May 16, 2006

 

Brazil's new soy buying programme only valid for 2006

 

 

Brazil's new subsidy programme for soy producers will only include the 2005/06 crop and would not extend into 2007, a Brazilian agriculture official confirmed Monday (May 15).

 

Edilson Guimaraes, agribusiness director at the Agriculture Ministry in Brasilia, said that the inclusion of soy in the government's options contract subsidy programme, known as PROP, was an emergency aid measure and would not be continued into the 2006/07 crop year.

 

Guimaraes said the government will likely hold its first ever soybean auction on May 23.

 

Some soy growers were unsure whether the government's final aid package--due later this month--would include a price subsidy for soy. But Guimaraes' comment Monday suggests the emergency aid measure will not be made permanent.

 

Farmers were surprised by the inclusion of soy in the government buying programme Friday because agricultural policy director Ivan Wedekin had hinted that the government did not have the financial resources to prop up local soy prices. As it is, the extra 1 billion Brazilian reals (US$458 million) in government spending will only be made available in 2007, even though the first auction is expected to take place on May 23.

 

The PROP programme has been used successfully for corn for decades. The government auctions put options contracts ranging from 1.50 reals to 6.00 reals per 60-kilogramme bags. An options contract operates like an insurance premium that protects the buyer from falling prices. The subsidy goes to industrial firms, but allows those firms, which buy soy from farmers, to pay more for soy than current market prices allow.

 

On the announcement Friday, farmers in the centre-west soy belt said that even in the circumstance that the auction winner managed a 6.00 reals option contract, the highest premium available, the option protection would not cover the cost of production of roughly 24.00 to 25.00 reals per bag.

 

"We want the minimum price to be at least 20 reals. That includes the little extra provided by the options contract," Guimaraes said.

 

Soy and other farmers have been protesting low prices throughout Brazil. The biggest protests are occurring in Mato Grosso and Mato Grosso do Sul. Soy transportation has been road-blocked in those states.

 

"We are not surprised that PROP was only for this year. I am going to find out today if we can extend it for next year," said Rui Prado, president of the Mato Grosso Soy Producers Association. Prado will meet with government agriculture officials on Monday.

 

Moreover, roughly 12 governors from farming states will meet with Brazilian President Luiz Inacio Lula da Silva on Tuesday to discuss further measures.

 

Farmers want at least a two-year deferment on all farm debt, said Antonneio Galvan, president of a farmers association in Mato Grosso.

 

Local soy crushers, fertiliser and agro-chemical companies are concerned that farmers will default on loans later this month. Farmers take out private credit lines from agro-chemical companies in September to help cover planting costs. Loans are due in May. Most farmers pay with soy and not cash.