May 24, 2006

Brazil soy market quiet as it awaits aid package

Brazil's soy farmers and traders remained on the sidelines on Tuesday (May 23), waiting for Thursday's arrival of both a 2 billion Brazilian real (US$888 million) farm package and the government's first-ever soy auction before committing to prices.

The government said it would announce the multimillion dollar aid package Thursday, but postponed the soybean auction that was supposed to take place Tuesday.

Brazil's government will auction roughly 2 million tonnes of soybeans Thursday in what is known locally as the PROP programme. Essentially, PROP requires two electronic auctions: one for soybeans and another for put-options contracts over the value of the soybeans purchased at auction. A put-option protects soy farmers from falling prices. The government will auction the options at a price of 1.50-6.00 reals per 60-kg bag.

The winner of the auction is the farmer willing to take the most risk, which would bring the option contract closer to 1.50 reals. The options contract price is paid by the government in an effort to increase market prices for soybeans and thus call more soy producers to market.

"I'm out of the market until Thursday. There's no sense selling now if you can get a better price two days from now," said Antonneio Bulle, a soy farmer in Parana, with over 3,000 hectares of soy farmed in Parana and Mato Grosso do Sul. Bulle said he sold 65 percent of his 2005/06 soy crop, but was taking a wait-and-see approach to the soy PROP programme for the time being.

"Brazil will be very slow until Thursday, then things will either get much better or much worse," said Jaqueline Alves, a soy broker at brokerage firm, Multisafras in Mato Grosso.

Farmers have been protesting in the centre-west and other states for the past four weeks, hampering soy shipments in many states. Farmers want debt deferments; debt extensions between three and 10 years instead of the 12-month extensions granted by government banks last month; and tax breaks on diesel and agro-chemical purchases.

"If Thursday's PROP auction doesn't go well, or if the aid package doesn't impress farmers, then these protests will get worse. They've been calmly anticipating this new emergency aid package," Alves said.