September 15, 2006

Brazil prepares US$470 million soy aid package

Brazil plans to distribute about US$470 million to its soy farmers to avoid a sharp decline in soy planting for next year's crop, a senior agriculture ministry official said last week.

Soy areas are definitely falling but authorities are trying to limit the impact, said Edilson Guimaraes, the ministry's new secretary of agriculture policy.

Guimaraes added that the government plans to start the soy support programme when the new crop is planted in October.

Brazil's soy farmers have long complained about the country's ever strengthening currency, which diminished profits gained from exports. Efforts to keep the real from further gaining strength, such as the central bank's dollar purchases and new rules allowing trading companies to keep dollars overseas for extended periods have ended in failure. 

To add fuel to the fire, international investors are attracted to Brazil's economic outlook and are investing in its economy. Finally, export revenue from Brazil's other commodities kept up the stream of dollars into its economy, causing the real to strengthen further.

Meanwhile, soy futures are under pressure from improving crop prospects and farmer marketing of large remaining old-crop supplies. Similarly, soyoil remains under pressure from weak energy markets.