May 30, 2006

Brazil to auction 1.4 million tonnes of soy

Brazil's Agriculture Ministry will auction 1.4 million tonnes of soybeans on Friday (Jun 2), as part of its new monthly electronic auction program for soybeans, the government said in a press statement late Friday (May 26).

The government's first soy auction was held May 25, where some 587,000 tonnes of soy were sold to local cooperatives.

Friday's auction is open to the centre-west, north and northeast soy industry. The auction programme, known as PROP is designed to increase market prices of soybeans by adding between 2 Brazilian reals (US$0.88) to 6.00 reals per 60-kilogramme bag in an options contract subsidised by the government.

An options contract is a financial instrument that protects contract holders from falling market prices. Soy buyers who bid successfully at the auction will hold a private auction on Jun 7 with soy growers. The soy farmers bid for the right to purchase the subsidised options contract and pay a small premium for that right.

"The market is still getting accustomed to this new way of buying soy so it's impossible for us to judge whether this is going positively or negatively," said Joao Paulo Moraes Filho, an analyst at the National Commodities Supply Corp (Conab) of Brazil's Agriculture Ministry.

PROP was historically used for corn and rice.

The government included soy in the PROP auction this month to protect soy growers from falling local prices.