Brazilian Soybean Market Paralyzed Due to Protests of Producers 5/11/2006
G.Bastos
advertisement The soybean supply chain in Brazil has been going through very difficult times. Last week’s events in the Center-West states evince the problems producers are facing in terms of lack of revenue.
The movement called Grito do Ipiranga originated in the state of Mato Grosso and has already spread into neighboring states, as well as southern and northwestern states, where storage units, roads and railroads are blocked, thereby preventing production from reaching the ports.
Among other issues, producers press for the creation of a specific exchange rate for the sector, interest rate reductions, diesel cost reductions, the opening of new credit lines for Asian Soybean Rust (ASR) control and the postponement of operating and investment debts. Blockages have paralyzed the Brazilian soybean market completely. Shipping companies no longer offer freight quotes; Ferronorte (the railroad linking the southern region of Mato Grosso to the Port of Santos) has suspended its soybean activities since May 4 th, as there is no soybean left in their warehouses and it cannot be purchased in the market either.
In the midst of this crisis stand the fertilizer and agrochemical companies that expected to receive a large number of promissory notes due in late April and which are now being put off till late May. Some agrochemical companies face insolvency rates as high as 70-90% in certain states. Producers’ delay in paying off their debts will cause a reduction in the offer of private credit for the next crop season, which starts in September/October.
Export trading companies (ETCs) also face a difficult situation. These companies traditionally hire vessels months in advance for the shipping of soybean from Brazilian ports. And now many of these companies are simply unable to make use of the full loading capacity of such vessels, generating costs with daily fines of up to $ 30,000 for ships moored at Brazilian ports.
According to movement sources, protests should continue until May 16 th, when a demonstration is to take place in Brasília, with rural producers from various states. Producers expect that at least part of their claims be fulfilled; however, most of them are banned by the strict fiscal policy of the Brazilian Ministry of Finance. In view of the latest events, the picture for the next crop season looms clearer: a marked reduction in both personal credit for agriculture and area under cultivation. An estimated reduction of 3.7 million ha (9.14 million acres) in soybean area is expected, with many producers quitting – mainly the most heavily indebted.
Quickies from the Ag Sector in Brazil
- Exchange rates in Brazil keep dropping. Some analysts believe they could fall below R$ 2.00 in the short term.
- Despite low exchange rates, agribusiness exports break records in the period from January to April. They added up to $ 13,246 billion, 8.2% above shipped values in the same period in 2005. The following groups of products account for export increases during the first third of 2006: soybean (9.7%); meats (5.4%); sugar and ethanol (20%); paper & cellulose (15.5%); and leather & by-products (10.6%).
- Agrishow 2006 – The International Agriculture Technology Fair of Ribeirão Preto – SP ( www.agrishow.com.br ), is scheduled to take place from May 15 th to 20 th. It is considered to be one of the major agriculture fairs in the world, and its trading volume serves as an indicator for the sector.
- Brazilian Government investments in biodiesel already exceed R$ 600 million (~ $ 290 million dollars), according to data from the Ministry of Mines and Energy. The country’s current installed capacity is enough to offer 1.7 billion liters per year, as opposed to 736 million liters in 2005. Soybean is the raw material used in two thirds of the biodiesel produced in Brazil today, followed by castor bean (25% of the total processed).
Guilherme Bastos Agroconsult - Brazil Visit us at: www.agroconsult.com.br e-mail: [email protected] Or call us at: +55 48 9921-9153 (cel.)/ 48 3282-9081 (office)
