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Brazil Farmers Vie for Soy Contract During U.S.-China Trade War
USAgNet - 09/11/2018

Brazilian farmers said they are seeking support to develop a soybean futures contract that would ease deals between Brazil, the world’s largest soy exporter, and top importer China at a time of heightened U.S.-China trade tensions.

According to Reuters, a growing chorus of growers, analysts, bankers and even a U.S. Department of Agriculture economist said it would make sense to establish such a contract to hedge growing risks as Brazil and U.S. soybean prices diverge.

Brazilian soybean port premiums soared to a record spread of around $2 above Chicago prices following a decision by Beijing to slap a 25 percent tariff on U.S. soy in July in retaliation for duties imposed by President Donald Trump.

A new contract could provide an alternative to the Chicago Board of Trade (CBOT) that dominates the global market for soy pricing. CBOT’s parent company, CME Group Inc, did not immediately respond to a request for comment.

Bartolomeu Braz, president of Brazilian grain growers association Aprosoja, said domestic soy farmers would like to see a new contract traded out of either Brazil or Argentina, the world’s third-largest soybean producer.

He discussed the idea with the Argentine ambassador in Brasília last year, and recently addressed the issue before a crowd of Chinese traders at a meeting of the FPA, the powerful agribusiness farm lobby of Brazil’s Congress.

Creating such a contract at Brazil’s B3 SA exchange is not complicated and would only require definition of standards relative to price, quality and quantity, said Frederico Favacho, an agribusiness lawyer representing Brazilian grain processing and exporting groups.

If the trade war continues and China wants to secure new-crop South American soybeans in January and February, the premium placed on the Brazilian soy “would be up for negotiation and that premium would be difficult or impossible to hedge via the CBOT,” said Dan Basse, an economist and president of Chicago-based consultancy AgResource.

The United States, the world’s No. 2 soy exporter, last year sold about $12 billion worth of soybeans to the Chinese while Brazil’s sales to that country were just above $20 billion, reports Reuters.

China has been virtually out of the U.S. market since tariffs were announced.

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