August 9, 2006

 

Falling CBOT puts breaks on Brazilian soy market again

 

 

Brazil's soy market has ground to a halt again this week as international soybean prices continue their slide on the Chicago Board of Trade.

 

Prices for 2006 soybean futures have fallen below US$6 a bushel. Even prices for May 2007 have lost their earlier appeal, falling close to US$6.10 from highs of around US$6.30 last week.

 

"There's really no activity on the physical market besides the government auctions at this point," said Helio Sirimarco, a consultant for Ativa Corretora, a grain brokerage firm.

 

Then again, even the soy auctions have been lacklustre, negotiating under 36 percent over the past two weeks. Two more auctions are scheduled for Friday.

 

"The reason there has been less and less volume negotiated in the last auctions is because of the heavy volume sold early on when these auctions began. Plus, there is very little soy left," said Paulo Gilioli, soy trader at brokerage firm Cerealpar.

 

Industry bought nearly 95 percent of the 1 million tonnes the government auctioned back in June. Volume has fallen steadily over the last several weeks.

 

The government created the new soy auctions to facilitate soy sales in the centre-west and north. Farmers there were selling below the cost of production. In the auctions, participants bid for the right to receive a subsidy upward of 5 Brazilian reals (US$2.30) per 60-kilogramme bag.

 

For the past several weeks, the entire market has focused on these auctions, with the exception of the southern states.

 

"I'm not selling outside of the auctions," said Adilson Jacinto, a farmer in Mato Grosso.

 

Parana and Rio Grande do Sul have largely carried Brazil's soy trade since the harvest. But as Chicago's soybean prices fall on good weather news in the US Midwest, not even a Parana farmer is interested.

 

"These prices have fallen steadily over the last three days and are no longer attractive for the new crop. That means no one should expect soy premiums to fall anytime soon," said Antonnesio Bulle, a soy farmer in Parana.

 

Bulle said farmers want Paranagua Port soybean prices to be 30.00 reals per bag. Traders have been asking to buy at 29.80 to 29.50 reals, but not much lower, according to Alianca Corretora, a brokerage firm.

 

Meanwhile, soy premiums continue at record highs. September premiums were 50 cents over the September CBOT soybean contract. Premiums are 21 cents over the March CBOT and have remained unchanged over the last three days.

 

Soy exporters said Tuesday was another slow day and added that one of the reasons they were not participating in the auctions was because they were not going to receive the subsidy from the auction until next year.

 

Brazil is the second-largest soy producer behind the US.