August 15, 2007

 

Brazil soy market brushes off market turmoil; new crop sales up

 

 

Brazil's soy market activity remained slow at the ports this week as all eyes swung toward some fearsome external worries: the financial turmoil on global markets, some failing investment funds, and their possible impact on futures in Chicago.

 

Despite the market wobbles of the past two weeks, however, many traders said they remained optimistic about the upcoming 2007/08 soy outlook.

 

"The fundamentals haven't changed," said Flavio Franca, an analyst at Safras & Mercado agribusiness consultancy. "In fact, the only direct impact of all this financial turmoil here in Brazil has been a higher dollar, which is good for soy producers."

 

On Tuesday, the US dollar closed at 1.989 Brazilian reals, up from BRL1.88 just a few weeks ago.

 

Despite the favourable news, local producers remained reluctant to sell this week at the country's No. 2 port of Paranagua, local traders said.

 

"There's soy in the warehouses, but there's little deal-making," said Alaor Balbinot, the director of grain trader Cerealpar in the country's southern state of Parana. "Producers here are looking for still-better prices, since the price of inputs has shot up so much."

 

Export premiums at Ponta Grossa in Parana state on Tuesday were quoted at between BRL37-BRL38 per 60-kilogramme bag for sellers and BRL36.50 for buyers, while prices at Paranagua port were quoted at BRL39 for sellers and BRL38.50 for buyers, local traders said.

 

About 80 percent of Brazil's 2006-07 soy harvest has already been sold, according to Safras & Mercado estimates.

 

The bulk of the soy left is in the country's southern states of Parana and Rio Grande do Sul, where an estimated 72 percent of Parana's 2006-07 soy crop has been sold and 65 percent of Rio Grande do Sul's crop, Franca said.

 

Despite the slow physical market at the ports, new crop sales are far advanced compared to the year-ago period, due to relatively high soy prices at the Chicago Board of Trade, other traders said.

 

In Brazil's No. 1 soy state of Mato Grosso, for example, where the majority of the 2006/07 crop has already been sold, an estimated 47 percent of the state's upcoming 2007/08 crop has already been committed, in exchange for fertilizer and other inputs, said Danel Sebben, a soy analyst at the Mato Grosso branch of Agencia Rural consultancy.

 

"Last year, we didn't reach half of this number," he said.

 

For its part, Safras & Mercado estimates that 37 percent of Mato Grosso's new crop has been committed, while out of Brazil's entire 2007/08 soy crop, 21 percent has already been sold by mid-August.

 

By contrast, just 9 percent of Brazil's new soy crop was sold at this point in the year-ago period and Brazil's five-year average for selling its new crop by mid-August is 11 percent, said Franca.

 

This week, business picked up in Rio Grande do Sul state, as local producers there sounded more anxious about the financial turmoil of global markets than the rest of the country.

 

"When you hear the word Armageddon - and I have heard this word today - you know that people are definitely nervous," said David Brew, a broker at Brasoja in Rio Grande do Sul.

 

Still, that made for some deal-making, as less traditional buyers fixed prices amid the market turbulence, he said.

 

In other news, Brazil is starting to sell corn for the new crop amid interest from global buyers, said traders.

 

Despite such news, most analysts and traders said it's still too early to tell whether or not Brazil's planted area for soy in its southern states could be slightly trimmed due to keen interest in corn.

 

Prices for soybeans in Rio Grande do Sul this week were quoted at BRL37 per bag, free on board conditions, at the port.

 

In the north and west of Mato Grosso, prices for soy from the existing crop were quoted for BRL28.50 per bag.

 

New crop soy in Mato Grosso was being sold for US$12.50 to US$12.80 per bag in the northern region, and as much as US$14 per bag in the west of the state.

 

"In dollars, this price is excellent," Sebben said.

 

Brazil is the world's No. 2 soy exporter after the US.