May 1, 2006

 

Appreciating Brazilian currency slows soy volume further

 

 

Brazil's real hit a five-year high against the US dollar in intraday trading Friday (Apr 28), rising to 2.08 real--wiping out any benefit farmers might have from rising commodities prices.

 

CBOT May and July soybean futures rose sharply on Friday to their highest levels since early March, on a volatile mix of commercial and index funds buying on dollar weakness. At 12.30 pm EDT, most-active July futures were up 15 cents to US$6.05 per bushel. But the real strength effectively erased the CBOT gains.

 

The local currency's strength also added to centre-west farmers' growing disdain for selling into this market as prices paid by industry remain well below production costs.

 

"The market was already slow, especially in the centre-west. The real just makes it worse," said Helio Sirimarco, a consultant at brokerage firm Ativa Corretora in Rio de Janeiro.

 

A seven-week high on the CBOT should entice Brazilian farmers to market soybeans. But the foreign exchange rate has wiped out gains, something farmers and soy traders have seen happen more than once this year already.

 

"The real effectively erased the surprising gains in Chicago today," said Jaqueline Alves, a broker at Multisafras in Mato Grosso.

 

Brazilian soybean producers should now be selling the crop nearly 80 percent harvested, but the currency situation is holding them back, according to Vinnie Ito, analyst at Fimat in New York.

 

"It does not pay for these poor guys to sell it at these prices because of the dollar relationship and the price of soybeans in their local currency," Ito said. "This is considerably lower than the cost of production."

 

"Don't expect much out of Brazil's soy market today. This exchange rate is a disaster," said a trader at a US multinational soy exporter in Sao Paulo.

 

The strengthening real adds to problems brewing in Brazil's centre-west states. Farmers there are protesting low commodities prices--blocking roads and closing grain silos, a spokesman for the Agriculture Federation of Mato Grosso do Sul said on Friday.