Brazil trade association commissions firm to monitor soy farmers’ contract compliance

RIO DE JANEIRO, BRAZIL – Brazilian oilseeds trade lobby Abiove is launching a tool to monitor farmers’ fulfillment of soy contracts, as global merchants seek to secure deliveries of grains sold in advance in the 2020/2021 cycle.

The initiative comes as Brazilian farmers presold half of their soy crop by last August, an unprecedented amount, sparking fears among trading companies that some could fail to deliver grains and force contract renegotiations.

Robust demand from China sent soy prices soaring to multi-year highs in recent months, causing some Brazilian farmers to regret pre-selling so much soy before a single seed had been sown last year.

Abiove commissioned a third-party company to develop the compliance system. The firm, which Abiove did not name, will also compile and organize the data.

“We are talking about registering contract information, allowing companies to gauge exposure in relation to a farmer,” André Nassar, Abiove’s chief executive, said by telephone. “Our goal is to reduce the asymmetry of information, and the tool will give companies information about the aggregate volume marketed by each producer.”

Nassar said trading companies suffered in 2004, when certain soy farmers defaulted on contracts after prices rose during the season. When the opposite happened, and prices fell, trading companies stayed compliant, he said.

Grain merchants will input information into a platform on a individual and confidential basis, Abiove said, adding rival companies will not have access to data pertaining to peers’ contracts.

Information on prices and financial values, as well as the location of the rural property, will not be fed into the database.

Brazil is poised to reap yet another record soybean crop of about 133 million tonnes this season despite a drought early in the season and a rain-delayed harvest.