December 17, 2008
Brazil soy trade sees tight supply this week on unhelpful forex

Benchmark Chicago soy prices rose, but Brazilian physical soy traders said the gains failed to stimulate business locally due to unattractive forex conditions and a shortage of beans.

Although the January soy contract on the Chicago Board of Trade was 12 1/2 cents higher at US$8.58 a bushel Tuesday, the US dollar at 2.37 Brazilian reals was down from peaks of around BRL2.50 two weeks ago.

"The dollar at BRL2.50 makes (soy) exports attractive, but in the BRL2.30 range, it doesn't stimulate much business," said a trader at a major US exporter.

The stronger dollar against the Brazilian real usually helps to kick-start exports because local exporters get more money for their beans in the local currency. Further, there is little urgency to do business.

All of the big international companies such as Bunge (BG), ADM (ADM) and Cargill are covered until about January 15, the trader said.

Although one broker exported beans to Argentina earlier this week for an international company, overall the market is quiet because most major players have already bought what they need.

Most crushers and exporters are waiting until the harvest when prices should start to slide as new beans enter the market.

"Brazil's soy trade is unlikely to pick up before 2009 unless a surprise rally on CBOT takes place," said Steve Cachia, a soy-market analyst at brokerage firm Cerealpar.

Brokers at a Sao Paulo brokerage said that buyers and sellers Tuesday were aiming at differentials of 85 cents over the CBOT January contract. Differentials are the price difference between Brazilian soy and the CBOT futures price.

Although farmers can make a profit by selling their few remaining old 2007-08 soy, most of the remaining farmers with any beans are carefully holding onto them to speculate.

Farmers are also reluctant to sell their new 2008-09 soy because they experienced high costs for fertilizer earlier this year, and they are seeing reduced margins.

David Goncalves, a soy consultant at FC Stone, said farmers need around $10 per bushel to make a profit in Mato Grosso, Brazil's No. 1 soy-producing state, and they are therefore reluctant to sell unless they need urgent cash.

As a result, Brazilian agricultural consultancy Celeres said that only 22 percent of the new beans had been sold by December 12 compared to 32 percent over a five-year average and unchanged from December 5.

Celeres said that 98 percent of the old 2007-08 soy had been sold by December 12 compared to 97 percent the week before and the same as the five-year average.

In other news, Celeres said that Brazilian farmers have planted 92 percent of the new 2008-09 soy crop as of December 12 versus 87 percent on December 5 and a five-year average of 95 percent. Mato Grosso has finished its planting, and a small number of farmers will begin to harvest after Christmas.

Celeres said that Parana, the No. 2 soy-growing state, has planted 99 percent of its soy.

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

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