South America Calling

Moves by China to build grain stocks and to buy soybeans directly from Brazilian farmers have left the local industry concerned.

Brazil needs to invest to offset the impact of China's moves, Luiz Carlos Carvalho, president of the Brazilian Agribusiness Association (Abag), said at an event in Sao Paulo Monday.

China has been taking advantage of lower grain prices to build stocks over the last year or so, which in the short term has helped support prices.

Brazil doesn't traditionally hold stocks and can't anyway because of a massive storage capacity deficit. It only has capacity to store 30% of its soybeans and grain on the farm, while in the U.S. that figure reaches 70%.

That effectively means it is passing the power in the soybean market to Chinese, the principle importers, farm leaders said.

"This will allow them to use stocks when prices get higher and reduce volatility," notes Andre Pessoa of Agroconsult, a local farm consultancy.

Brazil's government has sought to promote the construction of grain storage capacity over the last couple of years and the use of silo bags has spread, but this does not offset the storage deficit. And with grain prices in the doldrums and Brazil in the middle of a credit crunch, amid a dramatic economic slowdown, storage construction has stalled

The greater presence of Chinese buyers in Brazil's interior is also of concern to the local business.

With Chinese state trading company Cofco taking control of Nidera and Noble Agri, it is buying many more beans directly for export. This reduces the possibility of Brazil crushing its own soybeans, and corn, robbing it of a chance to add value to its production.

The growth of the Chinese in the Brazilian soybean market is also vexing the multinational exporters

(CZ)

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