October 23, 2006

 

Brazil's soy growers fixing prices after CBOT gains

 

 

With soy prices trading over US$6 per bushel all week on the Chicago Board of Trade, Brazilian soy growers who have been hammered by low local commodity prices are now rushing to lock in prices on the recently planted 2006/07 crop with traders and on the local futures market, brokers said Friday (Oct 20).

 

Soy prices on the CBOT rose to US$6.08 per bushel for the November contract with March and May contracts over US$6.30 on Friday.

 

"We've had some clients that have already sold half of their crop in Goias and another that's sold a third of it in Piaui because of these prices. We are not recommending anyone sit this out," said Fabio Meneghin, a consultant at Agroconsult. Farmers throughout most of Brazil's main soy growing regions have been selling below the cost of production this year.

 

Soy prices have risen on falling corn and wheat stocks in the US and worldwide. The expectation for the time being is that the US, the world's leading soy producer, will reduce soy planting area next year to make room for wheat and corn. Wheat is becoming attractive as crops in Argentina, Brazil and Australia are reported to be much smaller than expected. Corn is likely to expand in the US to feed ethanol plants.

 

Meneghin expects that once commodities investors start receiving the relatively positive news on Brazil's 2006/07 soy crop, prices will start falling again.

 

"Our suggestion for those who can do it is to sell, because this market will fall at any moment once people remember how much soy there is available out there," Meneghin said. Brazil will reduce planted area by a million hectares, but that will be made up by expansions in Argentina and Paraguay, Meneghin said.

 

A broker at Futura Commodities said soy farmers were fixing prices on the Brazilian Commodities and Futures Exchange, or BM&F, all week, including Friday. On Thursday, volume on BM&F soy futures saw May with open interest of 2,609 contracts and July with 5,191. The broker said the total contracts represent less than 1 percent of the 52 million tonnes Brazil is expected to harvest in the 2006/07 crop. Yet, the fact that Brazilians are fixing prices in the financial markets at all is a positive sign, the broker said.

 

There would be more volume negotiated between soy growers and traders this week if not for risk averse soy buyers, said Jaqueline Alves, a broker at Multisafras in Mato Grosso, Brazil's no. 1 soy producer.

 

"In Brazil you either fix prices on the BM&F or with the big soy crushers, and the soy crushers are being selective. There's more farmers anxious to close deals right now than there are buyers," she said.