November 15, 2006

 

Brazil's soy market remains bullish despite slower sales

 

 

Brazil's soy market remains bullish on soy price futures, but sales volume for the new 2006/07 crop slowed early this week as farmers wait for May to hit US$7 per bushel.

 

"That's the new magic number," said David Goncalves, a consultant at FC Stone, a commodity risk management firm.

 

"Producers and co-ops have stopped selling big volumes of new crop since late last week. Those that are tuned into soy prices in Chicago are waiting for prices to go even higher," he said.

 

Farmers are willing to bet on higher soybean prices on the Chicago Board of Trade in the months ahead based on the belief that the US will reduce soy-planted area by millions of acres in favour of corn for ethanol production.

 

In that scenario, the market would turn to Brazil for increased production, but early estimates are for Brazil to produce around 55 million tonnes in a best-case scenario.

 

"We figure the crop will be around 55 million tonnes if there are no weather problems," said Fabio Meneghin, a soy market analyst at consulting firm Agroconsult.

 

Farmers are spending less money on crop care this year in an attempt to cut overhead costs and pay down debts.

 

Higher CBOT soybean prices are essential for farmers here, especially in the centre-west and northern soy states where transport costs cut into margins, if they are ever to recover from two consecutive seasons of falling incomes. Not to mention a strong local currency.

 

The US dollar is currently worth 2.156 Brazilian reals, down from Monday's close of 2.169 reals. Farmers have since given up waiting for the dollar to help, so CBOT moves are closely watched. May 2007 soybeans were trading at US$6.86 per bushel in afternoon trading Tuesday, with July soybeans at US$6.95 per bushel on the CBOT.

 

"I'm looking at Chicago to get stronger. I'm with the farmers on that one," said a trader at a US multinational soy exporter in Sao Paulo.

 

The same scenario unfolded early last week, with farmers waiting for higher prices on late Tuesday after selling heavily on Monday.

 

On Monday, the local soy market was so slow that negotiations for soybean premiums did not move from Friday's close for March through July deliveries. March is currently 17 cents over the March CBOT soybean contract.

 

Soyoil and soymeal also flat, with premiums unchanged. Soyoil premiums were 80 cents over the December CBOT soyoil contract, and soymeal premiums were six cents below the December CBOT soymeal contract, according to Alianca Corretora, a brokerage firm.

 

Port prices rose to 34.50 (US$15.97) per 60-kilogram bag at the Paranagua Port in Parana state, up from BRL33.50 on Friday, Alianca said.

 

On Monday, consulting group AgRural said Brazil's new crop was 33 percent sold as of Nov 10. Last year at this time, just 7 percent of the 2005/06 crop was sold. In the centre-west soybelt, 49 percent of the new 2006/07 soy crop has been sold as of Nov 10, AgRural said.

 

Brazil is the world's no. 2 soy producer.