Brazil farmers vie for soy contract amid trade war

Futures would ease deals with China, hedge fluctuation risks

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 US-China trade tensions.

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

Brazilian soybean port premiums soared to a record spread of around $2 above Chicago prices following a decision by China to slap a 25 percent tariff on US soy in July in retaliation to duties imposed by US 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.

“The next steps involve seeking technical and legal advice to advance the process,” he said.

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.

Last year, the US, the world’s No.2 soy exporter, sold about $12 billion worth of soybeans to China while Brazil’s sales to China were just above $20 billion, according to government data.

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

Qu Yuhui, minister-councilor at the Chinese embassy in Brazil, said the concept of a Brazil-China direct futures contract merits discussion.

“Both sides should work in the direction of any idea – such as having the two sides sign a futures contract – that allows Brazil’s soy market and farmers to know how much Chinese demand there will be next year and lets Chinese buyers know what price they can get from Brazil,” he said in an interview last month.