August 22, 2007

 

Brazil soy market sleeps, as farmers beat retreat on CBOT

 

 

Brazil's soy market this week fell back into calm, as global financial markets steadied but local farmers retreated from deal-making to await higher Chicago futures prices, said local traders.

 

"The market is really weak this week, everyone is asleep," said a Sao Paulo trader for a leading multinational trading company.

 

On the Chicago Board of Trade on Tuesday, September soy futures closed at US$8.15 3/4 a bushel, while November contract ended at US$8.30 - good prices for the past few years, though a far cry from the over US$9.50 a bushel seen earlier this year.

 

The lull at the negotiating table, however, is due to more factors than just the reluctance of farmers to sell for such prices, said analysts.

 

"You have to remember that sales of the new crop are well-advanced this season, compared to the year-ago period," said Maria Amelia Tirloni, an analyst at the Mato Grosso office of Agencia Rural consultancy. "So everyone is just waiting."

 

Local Celeres agribusiness consulting firm on Tuesday (August 21) estimated that Brazil's coming 2007-08 soy crop has been 15 percent sold as of Aug. 17, while the 2006-07 crop was up to 81 percent sold.

 

The bulk of the old crop left to be sold resides in Brazil's southern states of Parana and Rio Grande do Sul.

 

In Brazil's No. 1 soy state of Mato Grosso, consequently, prices in the north of the state have hit climbed 30 Brazilian cents in the past week to year-long highs of BRL28.80 a 60-kilogram bag in Sorriso, due to few stocks left of the 2006-07 season, said traders.

 

In the southern Mato Grosso city of Rondonopolis, prices this week were quoted at BRL31.50 a bag.

 

In southern Rio Grande do Sul, little happened this week, despite warehouses still stocked with soy, said David Brew, a broker at local BraSoja brokerage.

 

Traders and analysts this week continued to debate the size of Brazil's coming soy crop, which should begin planting next month.

 

"We expect planted area to grow perhaps 6 to 7 percent for the new harvest," said Fabio Meneghin, an analyst at local Agroconsult consultancy, adding that the consultancy expects to release its official estimates by next week. "It's not going to grow more because of debt issues for local producers."

 

However, some traders disagreed.

 

"My estimate is 3 percent growth, because of the high rate of debt and since fertilizer prices have shot way up," said a Sao Paulo trader for a leading international trading company.

 

The trader added that he thought an estimate of 4 percent growth was "aggressive" and 5 percent growth was "very aggressive."

 

In the 2006-07 season, Brazil planted around 21 million hectares of soy.

 

Local Agencia Rural consultancy currently estimates a 7 percent increase in planted area to 22.7 million hectares for the 2007-08 harvest, while Celeres consultancy has estimated a 5.4 percent increase to 21.9 million hectares.

 

Local Safras & Mercado consultancy has forecast a 3 percent hike in planted area.

 

In other news, the Agricultural Ministry announced on Monday (August 20) that the ministry has asked the country's Chamber of Foreign Trade to exempt key fertilizers from a 4 to 6 percent import tariff due to prices that have jumped between 30 to 40 percent between last November and the end of March.

 

However, local traders said that they believed that even if this exemption is granted, it will have little impact on Brazil's 2007-08 season, given that roughly 70 percent of the fertilizer needs for the coming crop have already been purchased.

 

One bright spot - the strengthening US dollar against the Brazilian real - has resulted from the financial woes that beset global markets last week.

 

On Tuesday (August 21), the US dollar closed at 2.03 Brazilian reals, up from seven-year lows of around BRL1.90 just a few weeks back, and up as well from BRL1.98 last week.

 

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