November 18, 2009

Foreign exchange is the main obstacle to Brazil's soy trade this week despite prices at around US$10 per bushel.

 

January soy futures on CBOT ended 19 1/2 cents higher at US$10.29 1/2, and March soy settled 20 cents higher at US$10.35 3/4 on Tuesday. One US dollar closed at 1.71 Brazilian reals.

 

"The problem isn't the soy price, but it is the foreign-exchange rate," a chief soy trader at US soy exporter said.

 

The trader said soy prices are good at around $10 per bushel and farmers can make money. But they see the exchange rate trimming their profits, so they prefer to wait, he said.

 

The trader warned that the exchange rate of one dollar could move towards BRL1.60 and this would hinder trade.

 

But he added that soy prices would need to drop to US$7.60 per bushel to make the average Brazilian farmer unable to break-even. This accounts for an exchange rate of BRL1.70 per dollar and a premium of 12 cents over the May contract on CBOT, he said.

 

The trader said large trading companies also aren't buying aggressively as they have stocks to last until January for crushing or exports.

 

Seneri Paludo, an analyst at Mato Grosso's Agricultural Economy Institute, or Imea, said farmers in Mato Grosso, Brazil's No. 1 soy-producing state, are still holding out for better prices this week.

 

He said farmers don't face any real pressure to sell their crops until the harvest starts, when they will need to pay for everything from machinery to their workers.

 

This year, in Mato Grosso, many farmers are expected to harvest earlier. These farmers aim to supply beans to the market at the end of December and early January, to buyers with low stocks after the inter-harvest period.

 

Jackson Alaror, a broker at Brazil's Cerealpar, said on Tuesday that producers are looking for 55 cents over the March contract on CBOT. Buyers, however, want 47 cents to 48 cents over the same contract, he said. There is little trade being done, he noted.

 

Brazilian consultancy Celeres said 18 percent of the 2009-2010 soy crop has been sold as of Nov. 16. This is slightly up from 17 percent the week before and below a five-year average of 24 percent.

 

Brazil is the world's second-biggest soy producer after the US.