June 18, 2008
   

Brazil soy market quiet as traders await further news from US

Brazil's soy market is holding on to see what happens with the US soy crop once the floods recede in Iowa, brokers unanimously agreed Tuesday (June 17, 2008).

 

Flooded areas include soy areas in Indiana and Illinois as well. USDA on Monday reported 57 percent of the soy crop in good or excellent condition, which surprised some brokers who thought the figure would be much lower because of the floods.

 

Nevertheless, soy futures continue to push higher, to US$15.58 per bushel, and expectations by one big US trader in Brazil are that prices will go even higher.

 

A lot of flooded fields are not going to get replanted and those still standing would have poor yields, said a trader at a US multinational in Sao Paulo.

 

"Our in house estimate now is for prices to go to US$16 easily in a couple of weeks," he said.

 

Around three quarters of Brazil's 2007-08 soy crop, estimated to be around 60 million tonnes, has been priced already. What's left will trickle into the market between now and December.

 

He estimates that no more than 10 percent of the 2008-09 crop, to be planted in October, has been priced in the futures market.

 

At the ports, Bunge purchased 20,000 tonnes of soy at 10 points below the July soybean contract on the CBOT, said one broker at the Paranagua port, the No. 2 soy export port in Brazil. The soy was Europe-bound.

 

Business was already heated up when soy had discounts of 90 to 100 (points) under July, with China heavily into the market, said a broker in Parana state.

 

Soymeal discounts at the Santos Port, the No. 1 soy terminal in Brazil, were three points above the July soymeal contract on the Chicago Board of Trade Tuesday. There were no sellers this week, however, said a big US exporter in Sao Paulo.

 

Soyoil discounts were 180 points under the July soyoil CBOT contract on the buy side, with sellers asking for 161 points under July, the trading company said.

 

In the futures market, farmers and trading companies were reticent Monday and Tuesday with not much action from Brazilian soy futures buyers. People are waiting for news on the floods in the US before they trade soy futures, a broker said.

 

Meanwhile, the US dollar continues to collapse against the Brazilian real on expectations that the US would not raise interest rates. A rise in interest rates, in theory, tends to attract more dollars into the US.

 

As dollars continue entering Brazil for investment purposes, it has brought the real higher against the dollar.

 

Higher soy futures are compensating for the dollar's demise against the Brazilian real, said Heber Cardoso, senior risk management consultant at FC Stone.

 

The dollar issue has retreated into the shadows ever since the rise in commodity prices, but once soy prices retreat, Brazilian farmers are going to face problems, Cardoso said.

 

Big commercial farmers are using dollarized debt to finance dollar-based purchases like fertilizers, removing the currency risk.

 

However, most farmers are financing purchases through local, cooperative banks in Brazilian reals.