July 5, 2004

Brazil Soy Market Quiet As Market Watches China, US

Brazil's soybean market remained quiet this week as players closely watched developments in China and the U.S., traders said.
 
China's decision to allow Brazilian imports of soybeans was a huge relief to exporters. However, they still await orders from China.
 
"We await to see how quickly they come back to buy. Meanwhile, there is a lot of bargaining over the ships already these," said one southern Brazil-based trader.
 
Dropping stocks in the U.S. offer hope of an upside in nearby prices but that may be offset by a promising outlook for production up there.
 
"Farmers must start looking at when they will sell the rest of their harvest. There could be an opportunity appearing," said the trader.
 
Local prices dropped slightly compared with the week before as the Brazilian real strengthened, offering well-sold farmers little incentive to make stocks available, they added.
 
At the principal export port of Paranagua, soybeans were trading at around 46.50 to 47.50 Brazilian reals per 60-kilogram bag ($1=BRL3.05) on Friday from BRL48.00 and BRL49.00 last week, while in Ponta Grossa, northern Parana, soybeans stood at BRL43.00 and BRL45.00 or down two reals from one week before.
 
Soybean discounts for July shipment were quoted at $1.70 to $1.90 per bushel under the equivalent Chicago Board of Trade futures contract, some 10 cents lower than last week, reflecting the end of the China soybean embargo.
 
Farmers have begun committing small portions of next year's crop. In Rondonopolis, southern Mato Grosso, trading firms are offering $7.00 per 60-kilogram bag for delivery at the end of April 2005. However, most of the deals are closed in return for fertilizers and herbicides with prices to be fixed at a later date. This is because farmers were caught out fixing prices on delivery of last year's crop before quotes spiraled at the end of last year.
 
Brazilian government forecasts indicate local production is lower than previously estimated. On Thursday, the Agriculture Ministry's National Commodity Supply Corp, or Conab, forecast 2003-04 output totaled 49.7 million tons, 4.4% down on the 52.0 million tons produced last year.
 
Output was expected to reach 57 million tons in late 2003 but these hopes were scuppered by drought and attacks of Asian rust fungus.
 
Brazilian farmers lost 4.5 million tons of soybeans to Asian rust in the 2003-04 season, according to the latest estimate by the Agriculture Ministry's crop research agency, Embrapa. Summing up crop losses and the cost of applying fungicide last year, Asian rust cost farmers around two million tons, it said.
 
Despite increased costs, farmers will probably plant more soybeans and cotton in the 2004-05 cycle as prices remain attractive, according to Luis Carlos Guedes Pinto, Conab's president.
 
Farmers are still looking at prices to access by how much to expand soybean area next year, said Seneri Paludo, analyst at the local AgRural consultancy, adding that area was certain to rise significantly.
 
However, much uncertainty surrounds the conditions for the next crop. With the biosecurity bill still stuck in the Senate, it is increasingly unlikely that Brazil will have regulations governing the planting of genetically modified soybeans for the 2004-05 season.
 
Agriculture Minister Roberto Rodrigues said President Luiz Inacio Lula da Silva would not sign an emergency decree allowing the planting of GMOs next year, as he did for this year, and transgenic production could become illegal.
 
This could lead farmers to buy extra conventional seed stocks in the south once again, while they gauge whether it will be safe to plant their homegrown GMO seeds.
 
This year's ban on Brazilian soybean imports to China was sparked by the discovery of fungicide-treated soybean seeds in cargoes, which probably found their way into the cargoes as farmers tried to get rid of excess seed.
 
Meanwhile, the government must also regulate law 10,711/03, which establishes the National Seeds and Seedlings System, otherwise there will be no norms for the use of certified seeds next year, warned Iwao Miyamoto, president of the Brazilian Seeds and Seedling Association, or Abrasem.