August 23, 2006

 

Brazil's soy market wanes on weakness in CBOT, dollar

 

 

Trading on Brazil's soy market continued to wane this week, as Chicago futures contracts kept sliding and the dollar stayed weak.

 

"The Chicago contract is at its lowest level in a year and a half, and the Brazilian real is at its lowest point since May 2005," said Fernando Muraro, an analyst at AgRural consultancy.

 

Paulo Gilioli, a soy trader at the Mato Grosso office of Cerealpar brokerage, said that producers are not selling due to logistical problems.

 

"Great volumes that are in the warehouses have to be removed, and because of the lack of logistics in the state, trading companies do not want to buy anything until the soy is all shipped out," he added.

 

A trader at a major Brazilian soy trading company agreed with this assessment, but added that a larger problem for buyers was falling market prices compared to the higher government-set prices paid for soybeans.

 

"Who wants to pay (the government price of) 22.50 reals per bag when the market price is 18.90 reals?"

 

Since the end of June, the Brazilian government has been holding soy auctions to offer producers a higher-than-market rate for their product to help farmers struggling with mounting debt, rising input costs and a surging Brazilian real.

 

Nevertheless, as the dollar and Chicago soy futures prices have fallen, the government price has risen to US$15 to US$20 above the export price, said another trader.

 

"Who wants to pay that much above the export parity price?" he said.

 

Despite the deteriorating outlook, there were nevertheless small, isolated sales on the domestic market this week, said traders.

 

At the country's second busiest port of Paranagua, one trader said he'd heard of a sale for 3,000 to 4,000 tonnes of soy for 29.00 reals per bag compared to 29.50 reals in the past week.

 

In Rio Grande do Sul, roughly 14,000 tonnes were traded on Friday and Monday, with prices that varied between 26.00 reals per bag, payment in cash, at Passo Fundo, and 28.00 reals, on truck, at the state port, according to Ativa brokerage.

 

Traders continued to say that trading has lagged in recent weeks as deals have migrated to the government-held soy auctions. However, they uniformly added that they believed the volumes sold on the upcoming government auction this Friday would stay at a low 15-20 percent of the total 3 million tonnes to be offered, since most of the current crop has already been negotiated and shipped.

 

"If the auctions were not restricted to the centre-west and north-eastern states, then perhaps there would be more sales negotiated," said Anderson Galvao Gomes, an analyst at Celeres cereal brokerage.

 

Gomes added that if the government decided to allow volumes from the upcoming 2006/07 crop to be offered at the auction, instead of just soy from the current crop, demand would also surge again from buyers.

 

Still, other traders noted that if only the dollar would rise against the Brazilian real, everything would be bearable.

 

Brazil is the world's second largest soy exporter behind the US.