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Brazil soybean prices hit highest premium over Chicago in at least 20 years

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Soybean prices in Brazil’s top growing state have hit a rare premium over Chicago values – and the biggest one in at least 20 years – spurred by a clamour by crushers for supplies which are being drained by strong exports.

 

Soybean prices in Mato Grosso, responsible for nearly 30% of the country’s soybean output, gained 4.2% week on week to reach R$114.79 per bag on Friday, according to state research institute Imea.

 

The gain, besides representing a fresh multi-year high, meant that “prices in the state are above those in Chicago, which is rare”, Imea said.

 

The average so far this century is for Mato Grosso prices to trade at a discount of R$8.35 per bag.

 

Export surge

However, as of Friday, Mato Grosso prices extended their premium to $9.39 per bag which represents, by a distance, “the highest level of the last 20 years”, the institute said.

 

Previous, brief, sorties by Mato Grosso values into premium territory have tended to hit at best R$4 per bag.

 

The price gap reflected “early marketing”, as the weaker real, in boosting Brazilian values of a crop traded internationally in dollars, has encouraged producer selling to feed Chinese demand recovering more strongly than expected as hog numbers rebound after the African swine fever outbreak.

 

Imea highlighted the upgrade last week by the US Department of Agriculture of 4.5m tonnes to 93.5m tonnes for its forecast for Brazilian soybean exports in 2019-20, “25.4% above the previous season”.

 

Exports from Mato Grosso, at 20.5m tonnes for the first seven months of 2020, have already exceeded the total of 20.2m tonnes recorded for 2019.

 

‘Heated demand’

Growers have now marketed 97.2% of their 2019-20 crop, an advance of 10.2 points on the comparative figure last year, and meaning that “only” some 2.8% of crop “has not yet been traded by farmers”.

 

This when domestic crushers are also scrambling for supplies to exploit a jump in vegetable oil prices which, while noted in many countries over the past week, has been particularly strong in Brazil, hitting a record R$4,300 per tonne last week in Mato Grosso.

 

“This figure is 79.2% higher than the same period in 2019,” Imea said, attributing the increase to “heated demand” for the vegetable oil, noting in particular its use in making biodiesel.

 

Mato Grosso crushers “have been offering a wider spread for soybeans that still remain in silos”.

 

Brazil’s government last week cited the squeeze in the country’s soyoil supplies for a temporary cut to 10%, from 12%, in the mandated blending rate of biodiesel into diesel.

 

Separately, Sao Paulo-based Cepea noted too the strength in domestic demand for soybeans, which it said had driven the discount of values in the interior of major growing state of Parana to prices in the port of Paranagua to less than R$6 per bag, at one point, “the narrowest since 2016”.

 

“Demand for the Brazilian soybean continues firm, from both domestic processors and importers,” driving prices in both Parana and Paranagua to record highs, of R$124.97 per bag and R$131.09 per bag respectively, as of Tuesday.

 

The strong prices have also encouraged farmers to sell forward substantial crop for 2021-22 too, for which sowings begin next month, with 50.5% of Mato Gross soybeans marketed already, twice the comparative proportion a year before, according to Imea data.

 

For Brazil as a whole, Datagro has pegged forward sales of 2021-22 soybeans at 41.6% of the crop, compared to 20.1% last year and an 18.6% average, with Safras e Mercado putting the figure at 45%.

 

La Nina threat?

“Generally, farmers in Brazil do not like to forward contract more than about two-thirds of their anticipated production due to the uncertainty surrounding the weather,” said Michael Cordonnier at Soybean and Corn Advisor, noting the threat posed by a looming La Nina.

 

“Currently, there is approximately a 60% chance that a La Nina will develop during the last three months of 2020.

 

“A La Nina generally results in drier-than-normal weather in southern Brazil during the months of October-November-December.”

 

Mato Grosso farmers had forward sold 59% of their 2019-20 soybeans as of January, when harvest begins in the state.

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