June 28, 2006

Brazil announces soy price premiums for auction

Brazil's National Commodities Supply Corp (Conab) announced Tuesday (Jun 27) the premium it will pay above the spot price of soybeans in their upcoming auction with soy crushers and traders in the center-west and north, the local Estado newswire reported Tuesday.

The government will offer 700,000 tonnes of soybeans to industry in 10 states on Friday. Price premiums are a subsidy over the spot price in the local market.

Spot prices depend on state and region, but the highest premium is put at 4.89 Brazilian reals (US$2.19) per 60-kg bag in north Mato Grosso, Rondonia and Para states.

The second highest premium is 3.45 reals over the spot price in south Mato Grosso, Tocantins, Piaui, Maranhao, Mato Grosso do Sul and Bahia states.

The lowest premium is 1.96 reals per bag, to be offered to industry in Minas Gerais and Goias.

Soy crushers and trading houses will bid for the right to receive the subsidy. The winning bidders must then purchase soy from a local farmer at the strike price, and ship the soy out of the state. The strike price is the spot price plus the government subsidy, or price minimum.

The government created the new soy auction mechanism to subsidise farmers currently receiving payment for soy below the cost of production throughout the entire centre-west and north soy regions, according to industry consensus.

Brazil is the world's second biggest soy producer and exporter.