February 8, 2007

Weak US dollar has Brazilian government considering more soy auctions

A weak US dollar has the Brazilian government considering jump-starting its soybean auction programme just two weeks after announcing the auctions were done for the year, a government official said Wednesday (Feb 7).

Brazil's Agriculture Ministry was given 1 billion Brazilian reals (US$480 million) to subsidize the sale of some 12 million tonnes of soybeans in the 2006/07 crop. High soybean prices took many farmers and traders out of the auction, preferring to deal with the futures market. But with the dollar falling from BRL2.15 at the start of the planting season to BRL2.08 on Wednesday, farmers in the extreme north of Mato Grosso have seen soy prices fall below the government's minimum price target of BRL22.50 per 60-kilogramme bag.

"In some towns in the north of Mato Grosso, soybean prices in the spot market are now around 21 Brazilian reals or less. The dollar isn't helping. We have the resources set aside to the do the auctions again. We're evaluating the interest with local agriculture secretaries now," said Joao Paulo Moraes Filho, manager of the Agriculture Ministry's soy and oilseeds department.

No dates have been given for any new auctions.

The soy auctions became a new reality in Brazil's soy market in June when the government created its first-ever soy subsidy programme. Farmers and traders bid for the right to receive a subsidy over the price minimum set by the government. The programme was designed to facilitate soy sales last year at a time when low local commodity prices and a strong local currency had soy farmers protesting throughout Brazil.

For local industry, soy auction days tend to see heavy sales volume in the states where the auctions are offered, causing the traditional soy business to slow the day before and a couple days after the auction in those states.

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