July 30, 2008

 

Brazil's physical soy market continued to see slow business this week as soy prices fell on the Chicago Board of Trade, brokers and analysts said Tuesday (July 29).

  

"There's really not much business at the moment, due to prices lower on CBOT," said Steve Cachia, a soy market analyst at brokerage firm Cerealpar.

  

Soy future prices have been slipping since reaching record highs of $16 per bushel two weeks ago and August soy futures on Tuesday morning fell 29 cents to $13.71 a bushel on CBOT.

 

Physical soy prices have been dropping quickly in recent weeks, and Brazil's soy farmers, who have already sold most of their soy, are unwilling to sell the remainder as they have become accustomed to higher prices.

  

Brazil's old 2007-08 soy crop is 86 percent sold as of July 25, agribusiness consultancy Celeres said Monday.

  

"Brazil's soy producers who need to sell are choosing to sell corn, while most farmers hold onto their remaining soy to speculate unless they have an urgent cash flow problem," said Cachia. The same scenario replays itself year over year in Brazil's soy market.

  

With good weather in the US and investment funds selling some of their positions in commodities, there's little chance of prices going up in the short term, added Cachia.

 

According to Cerealpar, buyers were offering 50 cents over the September CBOT soy contract, while sellers asked for 80 cents above. Buyers offered 60 cents over the October CBOT soy contract, with sellers offering 100 cents over.

  

With such a large spread between buyers and sellers, it's very hard to find an agreement, said Cachia.

  

"The volume of soy business is low due to the lower prices on CBOT and is unlikely to pick up later this week," a broker in Sao Paulo said.

 

Jacqueline Bierhals, agribusiness and biofuels manager at consulting firm AgraFNP in Sao Paulo, said business in Brazil's physical soy market is expected to be quite slow until at least November.

 

"Business won't pick up here until November, when we know what the US soy crop is going to look like," she says.

  

A trade director at a leading US multinational soy exporter said that with prices hovering $14 per bushel, Brazilian soy farmers aren't competitive, with high costs such as for fertilizers pushing up prices.

 

He said that soy exports, therefore, won't be competitive in the second half of 2008 against cheaper Argentina soy or the old US soy crop.

 

A case in point is China, where the trader believes that Brazilian soy exports will dry up in the second half of 2008.

 

"We (Brazil) sold 10.8 million tonnes of soy to China in 2007 and by July 25 this year we'd already sold 9.9 million tonnes, which means they've already purchased what they need," the trader said.

 

He also said that China has enough beans for August and September, and is more likely to turn towards the large soy crop in the US if they need to make further purchases later in the year.

  

Brazilian farmers should plant between 21.08 million and 22.4 million hectares in the 2008-09 crop season compared to 21.2 million hectares in 2007-08, said agribusiness consultancy Safras & Mercado.

 

Taking an average between this range, Safras expects the 2008-09 soy area to grow 2.1 percent.

 

However, the trader at the US exporter disagreed. "If prices remain at current levels, soy farmers are unlikely to plant more soy," he said.

 

"We'd be happy if the area of land remains at the level of 2007," he said.

Brazil is the No. 2 soy producer behind the US.