June 28, 2006

 

Brazil's soy market slows on weak CBOT, US dollar

 

 

Brazil soy buyers expect a slow week as the dollar and international soy prices continue to be unimpressive for the second week in a row.

 

International soybean prices on the Chicago Board of Trade closed Monday at US$5.69 per bushel for the July contract and US$5.82 per bushel for September soybeans.

 

CBOT soybeans are firmer on Tuesday, but that is unlikely to entice farmers to market. Most farmers in the centre-west soy belt, as well as the smaller producers in the north and north-east, are waiting for a government soybean auction next week. Soy buyers in that region are holding out for Friday's soy auction, open only to industry and trading houses.

 

Brazil's new soy auction is similar to the US minimum price guarantee programmes, meaning prices for soy in the auction are considerably better than the current spot prices.

 

A source from private US multinational, Cargill, said it will participate in the auction on Friday.

 

Other US multinationals said the sector was waiting for the auction and would be slow Tuesday because of Brazil's fourth World Cup match at mid-day.

 

As for the rest of the week: "Everyone is waiting for the auctions," said a trader at a Bahia-based soy crusher. "The market will stop at lunch time and won't start up again for at least two hours afterwards," the trader said.

 

"The auctions are generating more business interest at the moment, especially considering the fact that Chicago has been falling on good weather news in the US," said Paulo Gilioli, a broker at grain brokerage Cerealpar in Mato Grosso.

 

International soy prices in Chicago have fallen on beneficial weather conditions in US soy regions, convincing market participants that the US is in for another record harvest.

 

"Producers are more interested in fixing prices for January and March 2007. No one wants to wait for prices to fall below US$6 again and no one has faith in the dollar anymore," Gilioli said.

 

"Those are the months we are working on here," Gilioli said.

 

January soybeans closed down on Monday, but still remain over US$6.04 per bushel on the CBOT. March soybeans closed Monday at US$6.13.

 

Meanwhile, the dollar is down again in early morning trading Tuesday to 2.22 reals after closing Monday at 2.23 reals.

 

The soy market's revenue is based in US dollars. The weaker the dollar, the less revenue to the sector and, ultimately, to farmers who are facing rising labour, fuel and transportation costs based in Brazilian reals.

 

"Unless the dollar or Chicago soy prices recover, you can count on a slow week for business in Brazil," said a soy buyer at Coimex, a soy exporter.

 

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.