South America Calling

Watching US-China Dispute, Brazilian Soybean Market Still Faces Uncertainties

Lin Tan
By  Lin Tan , DTN China Correspondent
A trucker strike in Brazil last month has increased the FOB basis for delivering soybeans to port. Meanwhile, Brazil saw a soybean price spike last week for August delivery over anticipation of more exports due to the U.S.-China dispute. (DTN file photo)

SAO PAULO, Brazil (DTN) -- While U.S. farmers are dealing with a lower soybean futures contract, the world's largest soybean exporter, Brazil, is facing its own brand of export problems, as soybean trade has been nearly suspended because of higher FOB basis.

FOB -- "free on board" or "freight on board" -- refers to the price a buyer or seller pays to take possession of a commodity at port.

Premiums for August beans in Paranagua Port south of Sao Paulo surged to US$1.95 per bushel on Monday from $1.22 per bushel last week after the announcement of China imposing a 25% tariff on U.S. soybeans exported to China. Sellers expected Chinese buyers to shift more soybean demand to Brazil. Yet, sellers may have been over exuberant because the basis is sliding lower to $1.70 per bushel this week because of the lack of buyers.

That premium price move is countered by continued shipping delays at Brazilian ports, which are still trying to recover from a trucker strike in late May. Though the protests officially ended, truck traffic remains slower than normal.

"More than 5.5 million metric tons (202 million bushels) of soybean was delayed in the port for export so far," said Thiago Piccinin, president of Lotus Grains and Oilseed, a trading house in Sao Paulo. "Freight in Brazil is still a big problem. Only a few truck drivers are loading beans to the port, many of them still waiting for a result of the freight negotiation."

March to September is the main Brazilian soybean marketing season, and premiums should be around 50 cents a bushel in normal years. "The current high premiums are partially because of the U.S.-China trade dispute and partially because of the truck freight problems," Piccinin said.

The Brazilian government is trying to increase the freight to make the truck drivers happy, but the higher freight brought difficulties for the agriculture industry. Trading companies need to ship soybeans to the port. In the meantime, the corn crop is being harvested and also needs freight to port.

Freight costs are 20% higher compared to before the strike and may increase another 10% depending on the negotiations between the government and the truck drivers' association. Nobody knows what the freight will be. Some truck drivers are loading on a negotiated price with the traders, as they need to make money to survive, while other drivers are just waiting for a final outcome of talks with the government.

Big trading companies, such as ADM, also may have troubles this year as they already bought the beans from the farmers based on the old freight cost, but now likely will need to pay a higher freight to ship it.

"There are a lot of sellers in the interior, but trading companies are not buying, as they do not know how to calculate the freight," Piccinin said.

The higher freight costs and lower CME prices also are coming back to bite Brazilian farmers who haven't already sold. While there might be a premium for August beans, spot cash prices are about 10% lower than they were a month ago.

"Today is the first day we have a soybean price after 20 days with no business and no price offers, as the trading companies are not buying," said farmer Ricardo Arioli Silva on a phone call while harvesting sunflowers and corns on his farm. "The price now is 63 reals per bag (US$7.72 per bushel), much less than 70 reals per bag (US$8.58 per bushel) a month ago. We do not want to sell our beans in this lower price."

Silva farms 5,000 acres at Campo Novo do Parecis in Mato Grosso.

As the freight is confusing for the supply chain, nobody wants to take the risk to do business. The movement of soybeans in the export pipeline is difficult.

"We hope the soybean price can be a little higher, so farmers can sell their products," said Silva, "Some farmers need money to pay their bill, while others need to buy seed and chemicals for the next season."

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