May 16, 2007

 

Brazil soy exports seen at status quo even as US dollar drops

 

 

A highly unpopular foreign exchange rate between the US dollar and Brazilian real is not enough to stop the country's estimated 26.6 million tonnes of soy exports this season, market experts said Tuesday (May 15).

 

"There will be zero impact on our soy exports because the product is there, it's already waiting to be shipped, and there's nowhere else to sell the remaining unsold soy except to exporters," said Flavio Franca, a consultant at Safras & Mercado.

 

The US dollar fell to a six-year low against the real on Tuesday, hitting 1.98 Brazilian reals. The deeper declines are coming as no surprise at this point to farmers and traders who have watched the dollar crumble over the last three years, squeezing farmers' profit margins.

 

The only good news at this point for Brazilian soy growers is solid international soy prices and overall bullish outlook for soy on the Chicago Board of Trade. July soybean futures closed at US$7.77 on the CBOT Tuesday, with 2008 soybean contracts back over US$8 per bushel.

 

"With the dollar now finally breaking below 2 (reals), there is a genuine fear that we are in for a free-fall now," said Steve Cachia, a soy market analyst for grain brokerage firm Cerealpar.

 

It's an understatement to say local soy growers are nervous. The CBOT is now their saving grace. Prices have only fallen marginally, down about US$1.05 in Rio Grande do Sul.

 

"(The) dollar's falling and our soy prices are falling as the harvest comes in. We know the dollar is going to fall further," said Airton Zalemena, a sales manager for Cootricampo, a cooperative in Rio Grande do Sul, the country's no. 2 soy producing state.

 

Soy prices there were 26.00 reals (US$13.13) compared with 28.00 reals last week, Zalemena said.

 

Prices at the Paranagua Port rose Tuesday to 32.50 reals from 32.00 reals on Monday, according to brokerage firm Alianca.

 

Zalemena said farmers were unlikely to turn to the futures market for price protections.

 

"It's a cultural thing. We sell on the spot market," he said.

 

Brokers and policy officials have been trying to convince Brazil's soy growers to use the local futures market to hedge against currency risks and commodity price volatility. But so far, the futures traders have been whistling in the wind.

 

"Why they don't use it is a mystery at this point. They just don't know how it works," Cachia said.

 

As the dollar falls further, farmers will be watching the CBOT closely, but traders don't expect any big movement in the futures market as a result of farmer price fixing.

 

Brazil is the world's no. 2 soy producer behind the US.