SAO PAULO Aug 12 Brazil's soybean market will see abundant supplies and lower prices next season, which will challenge farmers and favor traders with low costs and good financials, said Cargill's main soybean executive in the country.
In about a month, Brazilian farmers will start sowing what is expected to be a record soybean crop, more or less at the same time the U.S. harvests the biggest soybean crop in history.
"In previous years, it was necessary to move supplies quickly. Now that we have ample stocks everywhere, consumers are not in a rush to buy," Paulo Sousa, Cargill's director for grains and soybean crushing in Brazil, said on Tuesday.
That will help pace Brazil's oilseed sales and exports, but also will squeeze margins and demand higher cost control and efficiency.
"To carry stocks is very capital intensive. Someone must pay. There is a financial cost in keeping grains stocked. Physical infrastructure is also necessary," Sousa told reporters after an event at Cargill's headquarter in Sao Paulo.
Brazil's center-west grain belt has a storage deficit, which big food companies and trading houses, such as Cargill Ltd or Bunge Ltd, have tried to capitalize on by building their own silos and warehouses.
Some farmers also have started to use giant polyethylene bags to keep grain protected when conventional storage is full or not available to avoid having to sell when prices are weak.
Cargill's strategy for the 2014/15 season will be to optimize the use of its warehouse and cargo routings, Sousa said.
"Companies like us, with more than 120 storage facilities in Brazil, will ... move grains to places were we can be more competitive, with lower costs to access mills and ports," he said.
Sousa, who oversees Brazil's second largest soybean trading and crushing business after Bunge, said he expects a shift in futures market prices, in which longer contracts will be higher than spot contracts, something that has not been the case for almost three years now.
"In a few months, market prices will go from a backwardation to a 'carry' position, which will reward stocking," he said. Backwardation is when futures prices in the future are lower than the current spot price, which induces selling of the physical commodity rather than paying to store it.
Currently, however, a spot contract for soybeans on the Chicago Board of Trade (CBOT) is still 20 percent higher then the nearby contract November , while global supplies are still tight. (Editing by Reese Ewing and Andre Grenon)