July 27, 2006

 

Brazil's soy industry buys 34.5 percent of soybeans offered at auction

 

 

Brazil-based soy crushers and exporters purchased 34.5 percent of the one million tonnes of soybeans offered Wednesday (Jul 26) through the government's fourth electronic auction this month, the Agriculture Ministry said.

 

Over 345,100 tonnes were sold compared with 947,000 tonnes sold last week and 700,000 tonnes two weeks ago. More soy was sold during auction Wednesday than was sold all week in regular business.

 

The government created the new one billion Brazilian real (US$463 million) soy auction last month to facilitate national soy sales in a climate where farmers are currently facing market prices well below the cost of production throughout the entire centre-west soy belt. The auction is only offered in the centre-west, north-east and northern states because prices have been more favourable in the south for soy growers there.

 

Nearly all of the soy offered was sold in Mato Grosso do Sul and 100 percent of the 40,000 tonnes offered in Bahia and Rondonia was sold to local companies.

 

The new auction, known as Pesoja, sets a strike price of as much as 4.89 Brazilian reals (US$2.25) over the spot price for 60-kilogramme bags of soybeans. Strike prices vary per state and region of the state. The government subsidises the difference between the spot and strike prices set before the auction. Winning bidders are those willing to accept a lower subsidy.

 

Winning bidders are now required to purchase soybeans from local farmers and cooperatives at the prices settled at auction.

 

The new government trading mechanism ultimately gives soy farmers more money for their soybeans and pays industry for the difference.

 

A similar auction will take place Friday with soy farmers and cooperatives. In that auction, soy farmers will compete for the right to sell soy at the subsidised strike price. Farmers, in that case, receive the direct subsidy payment instead of industry. Another 1 million tonnes will be offered in Friday's auction.

 

Brazil has sold 2.6 million tonnes of soy in the Pesoja auction since June.

 

Brazil is the world's second largest soy producer and exporter behind the US.