September 30, 2008

 

Brazil's soy business grinds to halt on uncertain economy

Analysts in Brazil are unsure just what the recent fall in soy prices might mean for the 2008-09 planting season, but one thing is certain - new business for soy has ground to a halt.

 

Farmers will continue to refrain from selling their soy in the coming weeks as soy producers look wearily at the market turmoil, the defeated US financial bailout and soy price volatility, said Leonardo Menezes, an analyst at Celeres.

 

CBOT soy futures fell from nearly US$15 per bushel a few months ago to US$10.94 per bushel for the November contract.

 

Brazil will start planting its 2008-09 soy crop next month, although some soy farmers already have started to plant in areas such as Mato Grosso, Brazil's No.1 soy producing state.

 

Agribusiness consultancy, Celeres, said the new 2008-09 soy crop was 17 percent sold as of Sept. 26, on par with last week's data and the country's historic average at this time of the year - even with market volatility all month.

 

Brazil's old 2007-08 soy crop was 92 percent sold as of Sept. 26, just below the historic average of 94 percent at this time of the year and at the same level as Sept. 19.

 

There are some concerns that the recent financial crisis could lead to a decrease in soy planting in Brazil, said Steve Cachia, a senior commodities analyst at grain brokerage firm Cerealpar. "If the situation continues to get worse and farmers can't cover costs, we could see less planting," he said, adding that some farmers decide to plant extra acreage at the last minute. That land could be left for other use, though soy is still the best cost-benefit for many states.

 

David Goncalves, a consultant at FC Stone, said many farmers are likely to use less fertiliser due to falling soy prices and rising costs.

 

Goncalves said that although most farmers have already bought their fertiliser, some are holding off until the last minute to see what happens to soy prices. "Soy farmers could plant up to 5-percent less soy in 2008-09 versus 2007-08," he said.

 

While Menezes agreed that most soy farmers have already bought fertilisers, a few may use less. The uncertainty around soy prices caused by the financial crisis may lead to a small reduction in production in 2008-09, Menezes said without giving details.

 

Celeres will issue its new 2008-09 soy crop estimates at the beginning of October.

 

Brazil is the No. 2 soy producer behind the US.