* Rondonpolis soy $3.44/bu under Chicago, was 37 cents under
* Logistic bottlenecks, big crop to blame for drop in prices
By Reese Ewing
SAO PAULO, May 6 While Brazil is marketing its
largest ever soybean crop, many producers and traders will
register smaller-than-expected profits as logjams across the
nation's roads, railways and ports triggered a sharp drop in
local cash prices.
To be sure, it will be a good year for the local soy sector
given the strong demand, still attractive prices and massive
crop, but it will not be as sweet as it looked late in 2012.
The main culprit has been the Brazil's poor infrastructure
that has been unable to handle the biggest grain export crop
ever produced here. The extra cost of waiting several weeks to
get soy via truck to the buyers' ships at congested ports has
risen so much that the local price of the commodity has plunged.
Cash prices for soybeans in Brazil typically fall faster
during and shortly after the March-May harvest, than they do in
Chicago several thousand miles away.
But this year local prices fell much more sharply than in
the benchmark Chicago futures, which will catch not only
producers partially exposed but also those in the sector that
agreed to pay producers last year for the delivery of their crop
after this year's harvest.
"The weakening of local prices was quite sharp ... and will
bring unavoidable losses in many cases," said Pedro Marques, an
agricultural economist who teaches derivatives contracts at the
University of Sao Paulo's Esalq school. "This kind of risk is
hard to hedge against."
Take Rondonopolis, a key grain center through which most of
the soy from Brazil's biggest producing state Mato Grosso flows.
When Chicago soybean futures hit a record high on Sept. 4 and
ended the day at $17.71 a bushel, local producers were selling
at close to that price at $17.34/bushel.
But by last Friday, Chicago spot futures had closed at
$14.55/bushel, while Rondonopolis soy had fallen to $11.11,
a$3.44 per bushel difference, or basis, which will mean less
money for those producers who still have soybeans to sell.
In September, farmers around Rondonopolis and the rest of
Mato Grosso had sold more than 60 percent of this year's
harvest, according to the state Farm Economics Institute (Imea).
"Someone will have to absorb these costs," said a soybean
trader based in Sao Paulo at a large multinational company. "The
big traders are pretty good at spreading them around."
Often the producer feels the brunt of a bad turn in the soy
market. Heavy forward selling, however, will likely spread the
pain to others that do business or barter in the sector,
including farm equipment and fertilizer suppliers.
Many of these merchants set the price of their equipment or
fertilizer in bags of soybeans rather than in currency in the
second half of 2012 when soybean prices were peaking and local
producers needed supplies to plant.
Now, the spot price that they will now get for that soy they
are now being delivered is far less than what they paid for it
Few anticipated the full impact of logistical problems and
the sheer size of Brazil's record 82-million-tonne crop on local
"Savvy traders know when they are running some risk but I
think it's safe to say that the losses from this degree of
volatility in basis will be big this year," said Steve Cachia at
the Parana-based grains broker Cerealpar.