June 12, 2007

 

Brazil's soy price rise outpacing dollar's decline

 

 

The rise of soybean prices in Brazil is making up for a weak dollar that continues to take a bite out of soy grower profits, analysts said.

 

"Soy prices here are rising more than the dollar is falling. If the dollar was in better shape, these farmers would be making big money," said Flavio Franca, a soy market analyst for consulting firm Safras & Mercado.

 

Concern that a declining dollar was wiping out soy price gains on the Chicago Board of Trade are largely overblown, judging by average prices each month in the local soy market over the last 17 months.

 

In May 2006, soybeans were going for US$13.17 per 60-kilogramme bag with the dollar worth around 2.10 Brazilian reals. Local prices are based on CBOT soybean futures, minus discounts, freight and port charges in south Brazil, where soy prices are better for farmers.

 

In May 2007, soy prices rose a little over 23 percent to US$16.21 per bag, while the dollar declined by 6 percent to 1.96 reals. The May 2006 dollar-Brazilian real exchange was unusually volatile for the month, trading between 2.05 and 2.33 reals due to a correction in Asian markets. Based on an average of 2.10 reals, the dollar weakened 6 percent on the year.

 

The same holds for April 2006, with soybean prices in the local market going for US$12.66 per bag and the dollar trading around 2.12 reals. A year later, April 2007 soybean prices rose roughly 24 percent to US$15.76 per bag on average and the dollar declined by 3.3 percent to around 2.05 reals.

 

In March 2006, right around the time Brazil's 2005/06 soy crop was coming on line, soy prices averaged US$13.02 per bag and the dollar was trading between BRL2.15 to as high as 2.23 reals. Today's soy prices for the 2006/07 soy crop are over US$16.83 at the Paranagua Port in Parana, up roughly 30 percent since March 2006.

 

The dollar is currently trading at 1.94 reals, down from Friday's close of 1.96 reals. Market estimates are for the dollar to average around 1.95 reals throughout the end of the year, according to a Central Bank report released Monday.

 

"I don't see farmers cutting back on soy planting next year," Franca said. He said farmers are starting to use the local futures exchange to hedge against falling soybean prices and currency risks.