Brazil's slow soyabeans forward selling squeezes margins

Brazilian farmers' reluctance to sell forward the 2016/17 soyabean crop has reduced, and in some cases erased, profit margins for commodities traders, adding to uncertainty over the marketing of an expected record crop. A stronger local currency has reduced the earnings of soya producers, leading many of them to hold their crop in hope of better prices, traders said.
"The value offered to producers for future export deal is not reaching their price ideas," said the director of an Asian commodities trading house with operations in Brazil. Current spot soya prices at Paranagua port are 20 percent below June levels, for example, despite the peak inter-harvest period in Brazil, as the local currency has strengthened more than 7 percent since June 10.
The expectation of a record Brazilian crop and a large one in the United States has also put downward pressure on prices. Brazilian new soya crop forward sales have reached around a quarter of expected production so far, compared with 40 percent at this time last year, said consultancy Safras & Mercado. Traders say they are delaying deals as much as possible, but when necessary they end up squeezing their profit margins to secure beans for future shipments.
"When we receive an order to originate the beans from our headquarters, we have to pay what producers are asking, but the margins on these deals are horrible," said a purchase manager for another company operating in Brazil who also asked not to be named because he was not authorized to speak on the matter. In the top soya producer state of Mato Grosso, producers have asked up to 65 reais per 60-kg bag of soya, while traders have offered up to 60 reais. US-based food processor and commodities trader Bunge said last week it was being affected by slower forward sales in Brazil.
"Farmers just don't like the prices and they can't make returns based on the combination of forex and futures. They are hesitant to commit to forward selling," Soren Schroder, Bunge's chief executive, told analysts on a conference call. Archer Daniels Midland Chief Executive Juan Luciano had similar comments. "At present, new crop origination volumes are slow and behind plan," he said on an earnings call.