June 27, 2006

 

Brazil's centre-west soy market to stay quiet until auction

 

 

Brazil's centre-west soy market will likely remain on the sidelines until Friday (Jun 30), when the government plans to auction 700,000 tonnes of soybeans to industry located in the centre-west and north.

 

Roughly 463,500 tonnes will be offered in Mato Grosso, Mato Grosso do Sul and Goias, the country's main centre-west producers. Mato Grosso is Brazil's leading soy-producing state. Goias and Mato Grosso do Sul are the fourth- and fifth-largest producers, respectively.

 

"The centre-west states will wait for Friday before they do business," said Steve Cachia, a market analyst at grain brokerage Cerealpar. He said the northern and northeast states, like Bahia and Tocantins, will likely follow suit.

 

"South and south-east soy crushers will sell this week depending on international price moves and the dollar, and both are negative factors right now," Cachia said.

 

The July soybean contract on the Chicago Board of Trade closed Friday at US$5.80 per bushel.

 

Cachia said Cerealpar will participate in Friday's auction.

 

Soy traders in the centre-west soy belt are waiting for further details on the spread between the spot price and the government's new minimum price, or the strike price.

 

In a note on Friday, the Agriculture Ministry said the strike price for a 60-kg bag of soybeans in the north of Mato Grosso would be 22.50 Brazilian reals (US$10.08). But spot prices vary between northern towns located farther north and those closer to the centre of the state, said Jaqueline Alves, a broker at grain brokerage Multisafra in Mato Grosso.

 

"There is going to be interest, but right now industry is studying the rules and waiting to see what the premium is going to be. Some towns in the north have soy going for 18 reals and others 20 reals, so industry gets subsidised on the difference between the two prices. The greater the difference, the more interest, I think," Alves said.

 

Thiago Simon, a soy buyer at mid-sized soy crushing firm Sperafico Agroindustrial in Mato Grosso, said the company is studying the rules of the new government price minimum for soy, known as PESOJA, before confirming their participation.

 

Others in the southeast said they wouldn't participate.

 

"We don't know when we would receive the premium (subsidy). It's a little confusing," said Guilherme Correa, a trader at soy exporter Coimex. In previous announcements, the Agriculture Ministry said the subsidy payments wouldn't be made until 2007. Industry could obtain below market rate credit in the meantime.

 

"One would think that these auctions would facilitate business, but what we are seeing this year is that volume is very slow and sporadic because of the dollar," said Helio Sirimarco, a consultant at brokerage firm Ativa Corretora in Rio de Janeiro.

 

"The government is doing all it can to help the soy sector, but the main culprit in this market is the weak dollar," Sirimarco said.

 

The dollar is currently down slightly from Friday's close, trading at 2.23 reals.