August 8, 2009

 

Tight Brazil soy stocks, US crop may bring washouts

 

 

Record Brazilian 2008-09 soy crop exports will intensify the fight for soy on the local market through March 2010 and set the stage for possible export washouts if the US harvest is as huge as forecasted, traders said.

 

On Thursday (Aug 6), Brazilian crushing industry association Abiove forecast soy exports to reach a record 26.2 million tonnes in 2009-10 (Feb-Jan) due to production drop in Argentina and strong demand from China.

 

Brazil harvested 57 million tonnes in 2008-09, down three million tonnes from the previous year due to dry weather in the south.

 

Brazil's agriculture minister, Reinhold Stephanes, said the 2009-10 grain crop should be nine-percent higher than this season with more planted area going to soy at the expense of corn due to attractive prices. Brazil's soy production is also expected to benefit from the El Nino global weather phenomenon, which could bring above-average rain for Brazil's centre-south grain belt.

 

But until the next harvest in March 2010, the local industry will be aggressively keeping what little stock are left in warehouses from being exported.

 

The fight for the soy left in the market between exporters and industry begins from August, and it will perhaps be the tightest year in 15 years, said Renato Sayeg, head trader at Tetras Corretora in Sao Paulo.

 

Producers have sold about 80 percent of the current crop, and 22.5 million tonnes of soy have left Brazilian ports from January to July, said analysts.

 

Sayeg said most export business that will occur through December has already been closed but some producers or exporters could choose to cancel deliveries if local prices rise enough.

 

This could happen if there is a very strong compensation for soy on the local market, Sayeg said.

 

The recent strength of Brazil's currency could also add to incentives for Brazilian exporters to cancel sales. The Brazilian real has been trading at its strongest level since late September.

 

US producers are expected to harvest a bumper soy crop this year, which could drag down international prices. A large US crop could also give international buyers a reason to washout Brazilian export contracts if they had negotiated the contracts when prices were higher.

 

Pedro Collussi, an analyst at AgraFNP, said that prices for soy in the interior of Parana, Brazil's No. 2 soy producing state in the south, were already above the prices quoted at Brazil's main grain port, Paranagua, in the state.

 

A soybean specialist at a multinational grain trader in Brazil said that August exports should be strong though inferior to July, which saw 3.3 million tonnes of soy shipped abroad.