October 24, 2007

 

Brazil soy market drags in inter-harvest sluggishness

 

 

Brazil's soy market dragged along in typical inter-harvest style this week, marked by sluggishness and deals that were few and far between, according to market players.

 

"Now that it has rained, everyone wants to focus on planting and no one wants to think about the market," said Luciano Lucion, a trader at local grain brokerage Cerealpar.

 

"Buyers are only purchasing sporadically to cover occasional needs this week," said Steve Cacchia, also a Cerealpar broker.

 

A long bout of dry weather in Brazil's main soy-growing areas had farmers concerned since early in the month about whether their crops would be delayed to the point of affecting yields in the 2007/08 crop.

 

Luckily for producers, rains last week finally allowed for widespread seeding and 4 percent of the 2007/08 soy crop is now underway. Although the figure is far below the 11 percent planted in the same period last year, it is not far from the annual 5 percent average over the last five years, according to a weekly report by local agribusiness consulting company Celeres.

 

Mato Grosso, Brazil's No. 1 soy producer, reported that 9 percent of its crop was already planted by October 19 compared to 2 percent on October 12 and 24 percent in the same period in 2006.

 

"Farmers are making up for lost time," said Cacchia. He doesn't believe the delay in planting will significantly influence the outcome of this year's soy crop. Early estimates for the 2007/08 crop range from 59 million to 63 million tonnes of soy.

 

Brazil's second-largest soy-producing state, Parana, had planted 4 percent by October 19 compared to 1 percent the week before and 14 percent in 2006, according to Celeres.

 

Celeres also said that 28 percent of the 2007/08 soy crop has already been sold, compared to 18 percent in the same period a year ago.

 

Nearly 95 percent of the 2006/07 crop has been sold, and remaining soy - approximately 4.1 million tonnes, according to one trader - are concentrated in the southern part of the country, making widespread trading on the physical market difficult.

 

The few deals that were closed this week, not surprisingly, took place in Brazil's southernmost states.

 

"Everyone knows there is a smaller amount of soy available on the market starting in October, and they are prepared for it," Cacchia said.

 

On Tuesday, spot prices at the port of Paranagua ranged between BRL42.50 and BRL43.50, down from last week's BRL43.00 and BRL44.00.

 

Exports were also slow this week, according to one trader.

 

"We are expected to close October with 21.8 million tonnes in soy exports but I highly doubt we reach that number," he said, referring to this week's slow performance.

 

This figure reflects the exports for the same month last year, but according to Celeres, Brazil has exported 6.8 percent less so far in October this year.

 

The domestic market is far more active right now for soy than the overseas market, according to traders, and internal prices are more attractive for producers than export premiums.

 

"The increase in commodity prices does make up for the weak dollar at this point, in terms of production prices and exports, but few producers want to ship overseas in an inter-harvest period with low availability of soy," said Cacchia.

 

Market consensus is that trading will pick up strongly again only after harvest in February, possibly as early as January in Mato Grosso, where soy is generally harvested first.

 

"If Chicago prices shoot up, we may see producers selling their new-crop soy, and the market would move some," said Cacchia, but generally, perspectives point to a quiet period of sowing for now.

 

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