September 27, 2006

 

Sluggish trade in Brazil's soy market

 

 

There continue to be few surprises coming out of the Brazilian soy market, with another slow week expected as international prices fall and farmers have little soy left to trade, traders and brokers said.

 

Soy growers await a government decision on whether it will make good on a promise in May to provide 1 billion Brazilian reals (US$454 million) in subsidies for soybeans. The subsidy would guarantee centre-west soy growers prices that at least cover the cost of production.

 

Soy premiums continue to be high, reaching 70 cents over the November soybean contract on the Chicago Board of Trade on Monday. Port prices in Paranagua remain around 29.00 reals. CBOT November soybeans settled at US$5.45 Monday and hover near there midday Tuesday.

 

Even though the dollar has risen against the Brazilian real, Chicago soybean prices have fallen in tandem. This song has been sung all year long--when the exchange rate looks favourable, the commodity prices fall.

 

"Anything under US$6 a bushel is not feasible anymore. No farmer, no co-op wants to sell at that point," said a trader at Louis Dreyfus.

 

The dollar is currently trading around 2.20 reals. There could be some volatility because of the elections. Elections are Sunday. Challenger Geraldo Alckmin's support has risen, but not enough to beat President Luiz Inacio Lula da Silva in the first round, according to a poll released Tuesday. That means any election volatility in the currency is likely to dissipate by next week.

 

Besides the unfavourable exchange and falling soybean prices, soy availability remains light.

 

"We have nothing left to sell. And as far as new crop goes, no one is selling. No one knows what they are putting in the ground yet," said Januario Turcatto, a soy trader at Comacel cooperative in Rio Grande do Sul, Brazil's third-largest soy producing state.

 

The biggest story in Brazil's soy market remains 2006/07 planting intentions. There is still some debate on whether higher prices in other local commodities, mainly cattle, coffee and cotton at the moment, will translate into more cash for farmers who also plant soybeans. That would mean the crop reductions, currently estimated at 7 percent nationwide, could be less.

 

That said, growers in Mato Grosso, Brazil's no. 1 soy producing state, are still unsure of their planting intentions. Crop input purchases are slow even as planting season has begun in north Mato Grosso. Credit is trickling in.

 

"We could see a greater reduction in land than we think. No one has really decided what they are going to plant," said Jaqueline Alves, a soy broker at Multisafras in Mato Grosso.

 

Worst-case scenarios put Brazil's 2006/07 soy crop around 19 million hectares with total production as low as 51 million tonnes. Brazil produced slightly more than 53 million tonnes in the 2005/06 crop.

 

Brazil is the world's no. 2 soy producer and exporter.