November 2, 2006

Brazil sets soy minimum price at 22.50 reals per bag

Brazil's Agriculture Ministry sets its price minimum for soybeans on Tuesday (Nov 1) to 22.50 Brazilian reals (US$10.56) per 60-kilogramme bag for nine states, with the first subsidy auction taking place on Nov 10, the government said in a press statement.

The government will spend up to 1 billion reals on soybean subsidies in the 2006/07 crop. "This is a national first for Brazil. We have never had auctions before the harvest," Luis Guedes Pinto, Brazil's Agriculture Minister, said in the press statement.

The government started auctioning soybeans in May 2005 to facilitate soy sales. At the time, soy growers throughout the centre-west soy belt and even in the more prosperous southern state of Parana were protesting low local soy prices.

The government will auction 1 million tonnes of soybeans on Nov 10. Two auctions will take place, each offering 500,000 tonnes. The auctions, known locally as PROP and Pepro, have participants bidding for the right to sell or buy soy at the strike price. Strike prices will differ by state and region, but be no lower than 22.50 reals per bag. The bidder willing to accept a lower strike price wins the auction.

The auctions are only for Mato Grosso, Mato Grosso do Sul, Goias, Minas Gerais, Bahia, Maranhao, Piaui, Para and Rondonia soy growers and soy crushers. Soy prices tend to be lower in those states because of logistical problems.

Soy auctions tend to stall soy sales during the week of the auction because farmers prefer to fix futures prices in the auction system rather than with traders. Also, not all soy growers can fix futures prices with trading companies due to credit problems.

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