September 18, 2006

 

Brazil slow to sell new soy crop on cash crunch

 

 

Just 6 percent of the estimated 21 million hectares of soy expected to be planted in Brazil's 2006/07 season has been negotiated in forward sales, down from historic averages of 30 percent at this time of year, according to agribusiness consulting firm AgRural.

 

Brazil's soy planting season begins next month. At this time of year, though, soy growers are entering into forward sales agreements with large commercial soy crushers in exchange for fertiliser and agrochemicals for the planting season.

 

In Mato Grosso do Sul, just 11 percent of the soy expected to be planted this season has been committed for forward sales, compared to 18 percent in the 2005/06 crop, according to AgRural. Mato Grosso is the biggest soy producer in Brazil.

 

In Parana, 3 percent has been negotiated and in Rio Grande do Sul, just 1 percent.

 

"Anticipated sales have gone completely cold," said Fabio Meneghin, a soy market analyst for Agroconsult, a competing farm business consultancy. Meneghin said large soy buyers, like Bunge, suffered financial losses in 2006 because of early season deals with Brazilian soy growers to deliver bags of soybeans at harvest in exchange for crop inputs.

 

"Some of those bags never came because of crop losses," Meneghin said. Agroconsult calculated last week that soy farmers here owe roughly 1 billion Brazilian reals (US$465 million) to trading companies like Bunge.

 

"So you are finding companies less willing to barter because they are a little afraid of taking the risk," Meneghin said.

 

Early indications are for a lacklustre 2006/07 soy crop. Best-case scenarios put the crop at 53.5 million tonnes, barring problems with weather and Asian soybean rust in the centre-west soy belt. Farmers are also investing less in fertilisers and agrochemicals again this season.

 

Only Parana state is expected to increase planted area in the 2006/07 crop because crop input prices have dropped, making soy less expensive than sugarcane and corn in northern Parana farm towns.

 

Brazil is the world's second largest soy exporter and producer.