June 21, 2006

 

Soy prices unappealing to Brazilian traders, farmers
 

 

After two weeks of steady trade and price fixing, Brazil's soy market has slowed Tuesday on falling international soybean prices, and the expectation is for a slow week unless July soybean futures return to the US$6 a bushel mark on the Chicago Board of Trade.

 

"This week is no comparison to the last two weeks. When Chicago falls like this, it takes farmers who still have soy to sell a good three days before they return to market," said Guilherme Correa, a trader at export firm Coimex. Soy prices closed down Monday in comparison to highs above US$6 a bushel in the previous week.

 

The Brazilian real has been relatively stable, trading at 2.25 reals to the US dollar in late morning trading on Tuesday, so the foreign exchange markets have not made up for the fall in commodity prices.

 

July CBOT soybean futures were 1/4 cent higher in early afternoon trading at US$5.84 3/4, and November soybeans are unchanged at US$6.11 a bushel.

 

But traders seem to suggest the Brazil soy market is still working on July, even as more forward looking contracts are well above the US$6 a bushel price marker that enticed traders and soy farmers to close deals this month.

 

"Price fixing will be weak today and I don't see much in the way of soy deliveries either," said Jaqueline Alves, a soy broker at brokerage firm Multisafra in Mato Grosso, the nation's no.1 soy producer.

 

Soy growers are still anxiously awaiting the government's decision to mark a date for the next soy auction, expected by the end of the month. Soy was included in the government's subsidy auction programmes, helping soy farmers get more for their soy than the current market rate.

 

"There are two things slowing the market right now, one is the soy auctions from the government. I've got 50 farmers calling me a day wanting to participate in these things," said Diogo Santos, a broker at grain trading company Cerealpar.

 

The government is expected to announce changes to the way it includes soy in its buying programmes before the end of the month. "An auction date has not been set, so there is a chance there won't be one in June," said Edilson Guimaraes, agribusiness director at the Agriculture Ministry.

 

Last month, the government said it would auction roughly 2 million tonnes of soybeans each month. The government is currently considering changes to the soy programme, but there is no risk of the programme being cancelled due to a large cash crisis on Brazilian soy farms. Soy is Brazil's no.1 export farm commodity and the auction is seen as one of the sectors saving graces at this point.

 

Despite the drop in July's soy prices in Chicago, there will be some movement out of Brazil on Tuesday. "There will be price fixing today, but not for July. Farmers are looking at 2007," Santos said. March and May 2007 soybean futures opened near US$6.30 a bushel on Tuesday morning. Those prices are more attractive to Brazilian soy farmers given their general lack in faith that the dollar will strengthen and have thus become more important than price swings in Chicago.

 

"Those 2007 prices are going to have to be higher than they are now to really excite farmers. We are looking at US$6.50 before those contracts start moving down here," said a trader at a US multinational in Sao Paulo.

 

Port prices at Paranagua fell by 1 Brazilian real (US$0.44) a 60-kilogram bag to 29.00 reals on Monday evening after sustaining highs of 30 reals or more for much of the week.

 

Soy premiums remain high for Brazilian soybeans, currently at 16 cents over the CBOT July soy contract and 28 cents over the CBOT August soy contract.

 

Brazil is the second largest soy producer behind the US and is expected to have harvested roughly 53.8 million tonnes of soybeans in 2005/06, according to official estimates made this month.