December 5, 2006

Brazil to offer 12 million tonnes soy in December-January auctions

Despite high international soybean prices on the Chicago Board of Trade, Brazil's Agriculture Ministry said Monday (Dec 4) that it intends to offer 12 million tonnes of 2006/07 soy in six subsidy auctions between Dec 12 and Jan 31.

The next auction is scheduled for Dec 12. Two million tonnes of soybeans will be offered to farmers. In the auction, farmers bid for the right to receive a subsidy over the market price of soybeans in centre-west and north-east states, where prices tend to be slightly below the cost of production. There will be no auction for industry participation on Dec 12.

The first auction of 2007 is scheduled for Jan 3, when another 2 million tonnes will be offered for farmers and traders. Auctions will be held each Wednesday in January, according to the press statement.

These auctions mark the first time the government has interfered in the soy market for soybeans that have yet to be harvested.

The government created the mechanism in June for the 2005/06 crop to facilitate the soy trade in the centre-west, where prices for a 60-kilogramme bag of soybeans were well below the cost of production. The government set aside 1 billion Brazilian reals (US$462 million) in subsidies for the local soy market for the 2006/07 crop. Farmers reduced planted area by 5 percent nationwide this year, and as high as 20 percent in some regions throughout Mato Grosso and Mato Grosso do Sul states because of an ongoing liquidity crisis on Brazilian farms.

There was some doubt whether the government would continue the auctions as international soybean prices continue to hover near US$7 per bushel on the Chicago Board of Trade.

The government has already sold 1.7 million tonnes of soybeans from the 2006/07 crop, 82.3 percent of which were sold to soy crushers or farmers in Mato Grosso, the no. 1 soy producing state.