Some analysts see a price mismatch, while others believe that speculative movement and exchange rates explain differences
05/13/2024
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Soybean crop affected by rains in Soledade, Rio Grande do Sul — Foto: Daniel Calegari/Arquivo Pessoal
The heavy rains that damaged soybean crops in Rio Grande do Sul left their mark on the grain market last week, including the sign of a possible decoupling between prices in Brazil and Chicago.
On the U.S. stock exchange, prices rose in the first days of the floods, reflecting fears about potential losses, but the rate of increase lost strength, and the commodity ended the week with an appreciation of 0.33%, at $12.19 per bushel. In Paranaguá, the Esalq/BM&FBovespa soy index rose 2.05% in the same period, to R$133.86 per bag, according to Valor Data.
Some analysts see a decoupling between the two markets. For Leandro Guerra, from LC Guerra Corretora de Cereais, one sign of a disconnect in soybean prices in Chicago and Brazil is the improvement in export premiums, which were negative until last month.
“There is a difference of up to 15 million tonnes between estimates from consultancies and those from official bodies about the [soybean] harvest in Brazil. Furthermore, the floods in Rio Grande do Sul have increased the uncertainties about the harvest, which also contributes to the positive premium,” he said.
Luiz Pacheco, an analyst at TF Consultoria Agroeconômica, sees soybeans with more room to rise in the domestic market than in the foreign market due to the demand for biodiesel—soybean oil is the main raw material for production. “There is a dispute between trading companies for soybeans that will be crushed and those that will be destined for export,” he said.
Mr. Pacheco assesses that not even the losses in the Rio Grande do Sul harvest caused by excessive rain justify the rise in prices in Chicago since the United States Department of Agriculture (USDA) indicated a surplus supply on Friday in its new report on the global harvest.
“World ending stocks grew by 11 million tonnes in this harvest [2023/24]. Even with a likely reduction of up to 2 million tonnes in Rio Grande do Sul, there is still a lot of soy left in the world,” he said.
João Birkhan, CEO of Sim Consult, disagrees with the notion of a decoupling between the two markets. He assesses that the price of soybeans is not “detached” from the international market, even though, at various times, prices follow opposite paths. “We don’t have such a large consumption of soybeans in the domestic market to the point of decoupling. Brazil is a large exporter. Therefore, prices will rarely diverge from the international market. It can happen in specific cases,” he said.
Mr. Birkhan adds that the foreign exchange rate helped the recovery of soybean prices in the domestic market. The exchange rate rose to R$5.3 per dollar last month, which favors the conversion of values into reais by farmers.
The rise in soybeans on the domestic market amid the rains in Rio Grande do Sul also had a speculative component, said Darcy Pires of União Corretora. According to him, this movement caused trading companies to pay up to R$2 more for a bag of soybeans at the beginning of last week. But, last Friday, the price returned to an average of R$130 at the ports, according to the broker. Despite the uncertainties about production in Rio Grande do Sul, Mr. Pires believes there is “a downward trend,” as Brazil still has a good volume of soybeans.
Cotrisoja, a cooperative based in Tapera, Rio Grande do Sul, saw a “sudden rise” in prices. “There was a rapid accommodation in prices, with the market waiting for new information about the Rio Grande do Sul harvest. Despite the expected loss of productivity, there is no rush to purchase soybeans for now,” said Adriano Borghetti, commercial director at Cotrisoja.
Currently, a bag of soybeans is worth R$118 in the region. “But it’s difficult to say whether it will remain at this level. We don’t know how the harvest and logistics issues, which affect almost the entire state, will unfold,” he added. There remains uncertainty about the scale of the losses, which could increase with the new wave of storms in the state.
*Por Paulo Santos, Raphael Salomão — São Paulo
Source: Valor International