September 3, 2008

 

Brazil soy markets halt as CBOT dives

 

  

Brazil's soy physical and futures market slammed to a halt Tuesday (September 2) as prices dived on the Chicago Board of Trade, said analysts and brokers.

 

Soy futures fell 25.50 cents to US$12.98 per bushel for the November contract on CBOT Tuesday in a general free-fall for all commodities. "It's been almost dead for physical and futures soy business today," said Steve Cachia, a soy market analyst at brokerage firm Cerealpar.

 

Local futures brokers expect more of the same throughout the week.

 

Nonetheless, Brazil's soy farmers who do have soy remaining from the 2006-07 crop are still going to speculate for higher prices. They have plenty of time. New crop soy won't come in until late February and March, so farmers who do have soy will have until then before Brazil starts swimming in it again come March.

 

Brazil's old 2007-08 crop, harvested in May, is 90 percent sold, according to agribusiness consultancy Celeres Monday.

 

Soy bids Tuesday were 55 cents above the November soy contract on CBOT and sellers were asking for 80 cents above the same contract, according to Cerealpar. Bids were 65 cents under the May CBOT contract and sellers asked for 85 under the same contract at the port of Paranagua. The CBOT was closed Monday due to the Labour Day holiday in the US

 

A chief trader at a major US trading company expects around 22 million hectares to be devoted to soy in 2008-09 compared to 2007-08, which is about 2 percent more than last season.

 

Falling soy prices, rising costs and tightening credit lines make Brazilian soy farmers unlikely to devote more than 1 million hectares of new land to soy, enough to produce about 3 million tonnes over the 60 million metric tonnes harvested in 2007-08, he said.

 

Whatever the case, Brazil's 2008-09 soy crop is unlikely to make a big difference to global soy supply and demand because only modest increases are expected.

 

"If we produce less than 3 million tonnes, it would be a disaster," said the trader at the US trading company.

 

Fernando Muraro, an analyst at agricultural consultancy AgRural, expects to lower its forecast for the area of land planted with soy to below 5 percent growth in 2008-09 versus 2007-08.

 

AgRural in July forecast a rise of between 5 percent and 6 percent in 2008-09 to between 22.4 million hectares and 22.5 million hectares. Agrural expects to issue a new soy forecast later this month.

 

Soy farmers are discouraged from planting more soy with average profits falling and costs rising in August compared to July, Muraro said.

 

For instance, in parts of northern Mato Grosso, the largest soy growing state, soy farmers' average profits dropped to around BRL200 per hectare in August from around BRL450 per hectare in July.

 

In Parana, the number two soy growing state, which is located close to the main soy port of Paranagua, soy farmers recoup average profits of 350 Brazilian reals (US$211) per hectare in August against BRL700 in July. In just one month, Brazilian soy farmers in key states have lost nearly 50 percent on margins.

 

The costs of production in Parana were between BRL1,250 and BRL1,350 per hectare, depending on the quantity of inputs such as fertilizers, according to AgRural.

 

Soy is still less costly to produce than corn in Parana, which requires BRL2,000 per hectare. That could lead farmers in that state at least to stick to soy instead of switching to corn.