December 9, 2009

 

Forex concerns Brazilian soy farmers this week

 

 

The Brazilian real's relative strength to the dollar continues to hamper soy trade in Brazil.

 

Although the US dollar has rallied against other currency, it has moved up only slightly against the real, with one US dollar reaching BRL1.75 Brazilian reals on Tuesday, compared to BRL1.72 on Monday. The real has climbed aggressively this year against the dollar.

 

"We want to buy beans this week, but the farmers aren't willing to sell [them] mainly due to the exchange rate," a chief trader at a US trading company told Dow Jones.

 

January soy future contracts on the Chicago Board of Trade closed 9 cents lower, at US$10.44 on Tuesday.

 

Although CBOT soy prices are holding up well, it hasn't enticed Brazilian farmers to sell soy because the current historically strong Brazilian real is reducing their profits, he said.

 

For example, the price was at US$323 per tonne of beans a year ago, when one dollar was at BRL2.35. The price this week is around US$397 per tonne of soy but the exchange rate is around BRL1.75.

 

This means Brazilian farmers get less in dollars for their beans and are reluctant to sell, he said.

 

The trader said that the latest crop estimate of Brazil's National Commodities Supply Corp's was within expectation, at 64.5 million tonnes, having hardly any impact on trade.

 

The trader added that most companies have already been working with an estimate of 64 million tonnes. A few even expect 66 million tonnes of soy in 2009-10, he said.

 

Leonardo Menezes, a soy analyst at Celeres, agreed that the unfavourable forex has kept the brakes on trade. "Trade is really slow," he said.

 

About 19 percent of the new 2009-10 crop was sold and 98 percent of the prior 2008-09 crop sold as of Dec. 4, the consultant said. This is unchanged from the week before, he said.

 

Menezes said that the dollar has regained some ground against the Brazilian real on Tuesday and this may trigger new trade.

 

Still, he warned that with a lot of uncertainty about the weather, the exchange rate and prices, farmers are remaining cautious.

 

But Celeres recommends that farmers should sell a small amount of their crop to cover planting costs and fix margins, he said.

 

Menezes added that premiums were firm, at 40 cents over the March soybean contract on CBOT.

 

Beans were trading on Tuesday at around US$24 per 60-kilogramme bag for delivery in March in Paranagua, Brazil's main grain port, he said.

 

Brazil is the world's No. 2 soy producer after the US.