June 26, 2006

 

Brazil soy farmers welcome new government auctions

 

 

Brazil's soy farmers hailed the government's latest initiative to provide a minimum price guarantee with direct payments to the farmer.

 

Rui Prado, president of the Mato Grosso Soy Producers Association, expects massive participation in the programme.

 

The Agriculture Ministry announced Thursday (Jun 22) that it is replacing the current soy auction with two new auctions, one of which provides direct subsidy payments to farmers.

 

The new auction accelerates volume as participants would have to sell, said Jaqueline Alves, a broker at Multisafra in Mato Grosso.

 

The Agriculture Ministry announced it would offer 700,000 tonnes of soy to crushers and trading houses on Jun 30. On July 4, the government would auction off another 700,000 tonnes of soy to producers, giving them the right to sell soy at a higher price and receive a direct subsidy payment.

 

The payment is the difference between the spot price of soy and the government's minimum strike price. The strike prices would soon be announced.

 

In the first auction, called PESOJA, the company that bids successfully for the government subsidy must prove it purchased soy from a farmer or cooperative at the government minimum price and shipped that soy out of the state.

 

Trading companies and soy crushers would be in an inverted auction for the right to receive the differential between the spot price and the government minimum strike price. Companies that are willing to receive less would win the auction and be eligible for the subsidy payment.

 

Brazil will spend 1 billion Brazilian reals (US$446 million) in soy subsides in 2006, according to agriculture policy director Ivan Wedekin. The Ssbsidies would be paid in 2007 or in the form of low interest loans.

 

Detailed rules of how the two new auctions will function are expected by the end of day Friday, the National Commodities Supply Corp. said.