August 16, 2006

 

Brazil's soy market extends lull on weak dollar, CBOT slide

 

 

Brazil's soy market continued its lull this week caused by the double blow of tumbling international soybean prices and a Brazilian real that surged nearly 2 percent against the dollar.

 

However, local traders added that small volumes in Mato Grosso and Mato Grosso do Sul were negotiated this week, as well as slightly larger volumes in Rio Grande do Sul and Parana.

 

"It's not completely quiet," said Antonneio Sartori, the director of Rio Grande do Sul-based Brasoja cereal brokerage, noting that the brokerage traded 100,000 bags (6,000 tonnes) in Rio Grande do Sul for 29.00 reals per bag this week.

 

"Every day there's a little sold, step by step," he added. "But there's no really big movement, since farmers are waiting and dreaming that prices will go up, that North America will have a drought, or that the dollar will rise to 2002 levels."

Sartori added that he believed that the drop on the Chicago Board of Trade on Friday scared some farmers and so "they started selling a little more".

 

Nevertheless, "the dollar is a major problem right now and Chicago is really not helping matters," said Helio Sirimarco, a consultant for Ativa Corretora, a grain brokerage firm.

 

In general, the government-held soy auctions, which were started in July to guarantee farmers a minimum price, have continued to account for most of the market activity, especially in the states of Mato Grosso and Mato Grosso do Sul, said local traders.

 

Nevertheless, even trading on these auctions trickled to new lows Friday, with under 18 percent of the total volume of 3 million tonnes offered and sold, down from as much as 90 percent several weeks earlier, though traders varied on the reasons for this falling demand.

 

"The bulk of the crop has already been sold, and right now, people are just waiting for a rally on Chicago to fix prices," said Sirimarco.

 

Still, other traders added that, with Chicago prices sinking fast, there is no real interest from large trading companies to pay government-set prices for soybeans.

 

In other news, in Mato Grosso this week, "there have been some sales for the upcoming harvest, but most are trade deals," said Jacqueline Alves, a trader at Mato Grosso-based MultiSafra brokerage, noting that producers have been exchanging fertiliser or pesticides for bags of soy for the upcoming harvest.

 

Traders added that they did not see much hope for better prices in coming days.

 

"There is always hope for improvements, but with such good weather in the mid-western US and the size of the US crop, it's more likely that prices will decline even more, said Celso Gomes, a broker at Parana-based Granoeste brokerage.

 

The Brazilian real closed on Tuesday at 2.14 reals per dollar, down nearly 1.8 percent from the 2.18 reals registered last week.

 

Meanwhile, prices on the CBOT on Tuesday for the September soybean futures contract ended at US$5.56 1/2 per bushel, while November closed at US$5.69 1/4.

 

Only the May contract--which fell about 10 cents from a week ago to US$6 per bushel--continues to be somewhat attractive to Brazilian farmers, said traders.

 

Brazil is the second largest soy producer behind the US.