Brazil soy farmers, traders see smaller profits as prices drop

Mon May 6, 2013 5:59pm EDT
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* 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 (Reuters) - 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."   Continued...