July 12, 2007

  

Brazil soy, wheat industries keeping an eye on Argentina's energy crisis

 

 

Energy blackouts in Argentina are more of a headache for Brazilian wheat companies than they are for the Brazilian soy industry, Brazil traders said.

 

Both soy and wheat are important commodities in Argentina, and problems there can affect prices and overall business in Brazil.

 

"No one is asking us to produce more soyoil to make up for problems down there," said the chief trader at a US multinational soy exporter in Sao Paulo.

 

Thiago Simon, a soy buyer at Sperafico Agroindustrial, a mid-size soy crusher, said: "It's too soon to tell. If the problem continues, then you might have more buyers looking elsewhere for soyoil."

 

Wheat is another story.

 

"Argentina is shipping less wheat flour, less wheat grain," said Elcio Bento, a wheat analyst at Safras & Mercado, a consulting firm. "The end result is that Brazil will have to buy the more expensive wheat from the US and Canada."

 

Bento said Brazil should import between 800,000 and 1 million tonnes of wheat from North American markets between now and July 2008.

 

Wheat miller association Abitrigo asked the government this week to temporarily suspend a 10 percent import tax on wheat coming from nations that aren't part of the Southern Cone Common Market, or Mercosur. Imports from Mercosur countries enjoy duty-free entry into Brazil. Argentina is a member of Mercosur, along with Uruguay and Paraguay.

 

A cold snap in Argentina Tuesday (July 10) led to five deaths. The government pleaded with residents to cut energy use as the energy grid strained to deliver power to the nation's homes and industry. By law, residential customers have priority over other consumers.

 

The country's energy woes were compounded by frozen rivers that normally rush through hydroelectric turbines at a number of dams in the south of Argentina.

 

As a result, soy and wheat milling companies are having their power cut from mid-afternoon through midnight every evening. They are still crushing soy in the early morning and afternoon hours. Wheat millers are getting hit by the same power cuts and flour production is being affected.

 

Moreover, with shortages of natural gas, diesel and electricity plaguing Argentina at the onset of winter, farm groups are complaining that the lack of sufficient energy is hurting the sector overall.

 

"If the government says everything is OK, why is everything so bad?" asked the Argentine Rural Confederation, or CRA, in a recent press release.

 

Benchmark soy oil prices on the Chicago Board of Trade have soared to around 38 cents per pound, up from historic averages of 22 cents per pound.

 

"Today you have two main factors that affect the price of soyoil in Chicago: supply and demand, and the price of petroleum," said Miguel Biegai, a commodities specialist at Safras & Mercado. He said Argentina's woes were no one else's at this time.

 

"The Argentine blackout is a factor that will influence soyoil prices, but it's not a major one," he said.

 

Biegai said the blackout would have little effect on Argentina and Brazil's fast-growing biodiesel sectors, despite the predominant use of soyoil as a biodiesel feedstock.

 

"The blackout won't completely stop the Argentine soyoil industry; they'll just crush a little less than they normally do," said Biegai.

 

"If this keeps up in Argentina, the window of opportunity for Brazil to pick up the slack for soyoil demand would be very small and short-lived," said Steve Cachia, a commodities market analyst for grain brokerage Cerealpar.