September 17, 2008

 

Brazil soy market cautious; all eyes on US commodities

   

 

Brazil's soy market is sitting back and watching hurricane force winds blow by them this week as the commodities market continues to crash hard ashore.

 

"Brazilians are selling out of their soy positions right now for May," said Luiz Veira, a broker at Terra Futuros in Sao Paulo.

 

"With this financial crisis in the US, you can just forget any talk about fundamentals this week. I'm extremely bearish," he said.

 

November soy on the Chicago Board of Trade is around US$11.59 a bushel. A few months ago they were nearer to US$15 a bushel.

 

Soy export business has slowed this week as all eyes turn to Wall Street and the US dollar. The stronger the dollar goes, the lower commodities are likely to go, brokers from the Brazil Futures & Commodities Exchange said.

 

Some sellers in south Brazil are willing to sell soy at premiums of 75 points over the November CBOT soy contract for next month's delivery out of the Paranagua port, but there have been no takers, said a broker at Soma Corretora.

 

"Traders have been able to convince sellers to deal at US$20 per bag for new crop soy (60-kilograms) in Mato Grosso, but not in very big volumes," said Diogo Santos, a broker at Cerealpar.

 

"Whatever actual soy is left is in the hands of big farm operations who do not need to sell and have the warehousing space to keep their soy," Santos said. "When they are selling, it's not in regular volumes of 10,000 tonnes, it's maybe a thousand or two thousand," Santos said.

 

The recent calamity in the global commodities markets has everything to do with investors selling out of commodity positions - whether its in soy or petroleum.

 

The market is also waiting to see if the US will cut interest rates to help restore investor confidence and badly needed liquidity to the financial system, analysts said Tuesday.

 

The policy-making US Federal Open Market Committee is expected to cut the Federal-Funds target rate Tuesday afternoon to 1.75 percent, from 2.00 percent currently, traders and analysts said, a move needed to keep general markets from plunging even further.

 

"Everyone is scared and waiting to see how much Wall Street is going to liquidate out of commodities before they start hedging again," said a broker from Link Corretora in Sao Paulo.

 

No one is expecting Brazilian soy growers to reduce planted area as soy prices fall, said Viera.

 

Santos expects planting in Mato Grosso, the leading soy state, to increase by no more than 5 percent in 2008-09. Planting starts for early-cycle soy this month in Mato Grosso. The bulk of the crop gets planted in October nationwide.

 

"Agricultural commodities won't crash, but the best case scenario is stability," said Tony Volpon, the chief economist at brokerage firm CM Capital Markets in Sao Paulo.

 

"Prices today may have overshot a little bit and in certain commodities you can go back up," he said.

 

The only good news for Brazilian soy growers is that the dollar has largely shielded some of the losses in soy futures prices. That has not always been the case. Sometimes this year the dollar would fall against the Brazilian real while it was rising against the euro.

 

This time around, the dollar is heading up against the real as soy futures fall - so that will at least aid farmers in planting the 2008-09 crop.

 

Expectations are for Brazilian soy growers to increase planted area by as much as 3 percent, according to Safras & Mercado, a large agribusiness consultancy.

 

Brazil is the world's No. 2 soy producer behind the US.