July 25, 2007

 

Brazil soy market in slow motion; new crop sales rise

 

 

Brazil's soy market remains in slow motion this week, with very little soy left in the main soy producing states, traders said Tuesday (July 24).

 

"There are very few sellers in the market this week," said Steve Cachia, commodities analyst for grain brokerage Cerealpar. "South soybean prices have not changed much over the last 10 days, and centre-west soy farmers are waiting for higher prices."

 

Soy prices at the Paranagua port were 32.20 Brazilian reals (US$17.31) per 60-kilogramme bag on Monday (July 23).

 

The biggest news coming out of Brazil's soy market this week has been AgRural's planting intentions estimate for the 2007/08 crop on Tuesday (July 24). AgRural said Brazil should increase planted area by 7 percent to more than 22 million hectares. Most market estimates have been calling for expansion of as low as 5 percent to as high as 10 percent, thanks to higher soybean prices.

 

Soy farmers plant in late September and October. The big variable in all of this expansion talk is going to be farmer debt burdens, market analysts said this week.

 

"I don't know if 7 percent is doable yet because farmers are still renegotiating debts and I don't know if they will have that kind of money to spend," said Helio Sirimarco, a commodities broker in Rio de Janeiro.

 

Then there's the dollar, which is still unimpressive to soy farmers. The dollar rose 1 percent on Tuesday to close at BRL1.86, but market expectations are for the dollar to fall to BRL1.80 in the months ahead. That means Chicago Board of Trade soybean futures have to raise more to get farmers buying futures contracts for the 2007/08 crop.

 

Producers in Mato Grosso, the country's top soy-producing state, already have sold 40 percent of the 2007/08 soy crop before they even planted it, thanks to soy futures over US$9 per bushel a few months ago.

 

"That's a record," said Seneri Paludo, a soy analyst for AgRural. "They've never sold so much so far in advance and that's because they don't want to chance the dollar collapsing on them."

 

So far, Mato Grosso has sold 91 percent of the 2006/07 crop, followed by Parana, with 78 percent of the old crop sold, and Rio Grande do Sul, with 47 percent of its 2006/07 crop sold at this time, according to AgRural.

 

Rio Grande do Sul, the No. 3 soy-producing state behind Parana and Mato Grosso, tends to sell the bulk of its crop in the inter-harvest period, when prices are higher locally.

 

Discounts have fallen somewhat over the last two days. Discounts for Brazilian soybeans are 20 cents below the August soybean contract on the CBOT and 85 cents below the May soybean contract on the CBOT. Last week, discounts were more than US$1 below CBOT soy prices for the May contract.

 

"Now is the time for traders to sell on the discounts and make their money in arbitrage," said a broker at Alianca Corrietora in Parana state. "Other than that, there is very little business getting done this week."

 

Discounts are the difference between CBOT soy prices and soy futures on the Brazilian Commodities & Futures Exchange. Brazil soy prices are usually below those quoted in Chicago.

 

Brazil is the world's No. 2 soy producer behind the US.