April 4, 2007

 

Brazil soy market anxiously ponders weak US dollar, CBOT weakness

 

 

Brazil's soy market is anxiously pondering an ever-declining dollar and soybean futures weakness this week on the Chicago Board of Trade, brokers and traders said Tuesday (Apr 3).

 

"It's like a cemetery around here," said a trader at a big US multinational.

 

"We're not going to get producers to sell into the market at these prices," the trader said.

 

The dollar is currently worth 2.035 Brazilian reals, the lowest trading level since March 2001. Soybean futures on CBOT are lower across the board, erasing Monday's gains. May soybean futures are around US$7.75 per bushel in early afternoon trading with November soybeans down at US$8.18 per bushel.

 

Strategists at farm consulting group Celeres told farmer clients on Monday to hold out for the soy market price correction to work itself out, arguing prices would become favourable again at the beginning of May and June. By then, Brazil's harvest will be out of the ground, and the market will be speculating on US weather.

 

"Farmers here are willing to speculate now on US weather," said Steve Cachia, a soy market analyst at Cerealpar.

 

Poor corn and soy crop development in the US could cause a sustained rally in Chicago, Cachia said.

 

Local soybean prices rose Monday, following the CBOT rise, but are declining again Tuesday.

 

"Chicago's gains this week have been erased by the foreign exchange (between the dollar and Brazilian real," said Flavio Franca, an analyst at Safras & Mercado, an agribusiness consulting firm.

 

Chicago prices are still favourable for most Brazilian farmers, with centre-west producers approaching breakeven in some cases, Franca said.

 

One might think that farmers would rush to the futures market to fix prices as they are, but dollar hedging has taken a front seat preference at this point.

 

"We're telling them to lock in the dollar because this thing can easily go below two reals," said Helio Sirimarco, a broker at Fator Corretora in Rio de Janeiro.

 

"Many are doing this. Those who won't will lose out on Chicago's rallies," he said.

 

Some large traders are out of the market so far this week, having purchased heavy volumes since the start of the year and now preferring to sit back and watch the soy roll into the warehouse.

 

"Traders are not much interested in buying this week. They're well supplied at this point," said Diogo Santos, a broker for Cerealpar in Mato Grosso.

 

Soybean exports are starting to pick up. Brazil shipped 2.05 million tonnes of soy in March to world markets, mostly to China and European nations. In February, Brazil sold 774,000 tonnes of soybeans.

 

Soymeal exports for March were 992,000 tonnes compared to 642,000 the month before. Soyoil exports were 156,700 tonnes compared with 56,500 tonnes in February.

 

The country should harvest over 58 million tonnes of soybeans in the 2006/07 crop, according to current industry estimates.