September 26, 2006

Brazil's soy market awaits US$448 million in subsidies for new crop

Brazil's soy market is still waiting for a promised 1 billion Brazilian reals (US$448 million) in subsidies promised by the Finance Ministry in May to help soy growers in the centre-west.

The temporary measure has not yet been given to Congress, the Agriculture Ministry said Monday (Sep 25).

The funds would permit for the auctioning of some 14 million tonnes of soybeans from centre-west and northern soy farms. The money would be used in the government's new minimum price guarantee programmes, created for soybeans in May because farmers in the soy belt spent much of the 2005/06 season selling soy far below the cost of production. The subsidy requires the government set a target price over the spot market price of soy and auction the difference in the form of an options contract.

The subsidy is paid to industry and not to farmers, though farmers benefit from higher prices. Price minimums have not been set.

The government spent nearly 1 billion reals this year in soy price subsidies.

"So long as Chicago is under US$6 at harvest time and the dollar is where it is today, we will likely use subsidies to help soy farmers. We have to do this at this point or soy becomes unfeasible in parts of Mato Grosso," said Savio Perreira, a soy auctions coordinator at the Agriculture Ministry.

Mato Grosso is Brazil's no. 1 soy producing state. Brazil is the world's second largest soy producer and exporter, following the US.