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Rising Dollar Boosts Brazil’s Rice Growers Exports and Profits

Rice grown in Rio Grande do Sul, Brazil Neither the global economic meltdown nor a new auction of 50,000 tons of public inventories, announced for next Tuesday, October 12, by Brazil's National Food Supply Company (Conab), have altered the trend of increase in the price of rice in the domestic market. In the international scenario, rice, which has little bonds traded in the futures market, had the lowest oscillation of all commodities.

The appreciated dollar is making up for the low prices of the United States currency in international markets over the last 60/90 days, and breathing new life into Brazilian exports. At the same time, it inhibits imports, as one month ago, a bag of rice purchased in Uruguay would cost US$ 20 and, this week, the price reached US$ 16.

Argentina and Uruguay are increasing by up to 20% their planted area for rice next year, and Brazil might reduce by 0.4% or expand by 2%, according to a survey by the Conab. In the state of Rio Grande do Sul, which harvests 60% of the Brazilian crop, the trend is for an increase.

Domestically, the weekly offering by Conab, which closed its auction this week at an average of 34.05 reais (US$ 15.61) per bag, was absorbed by the market and only serves as a basic reference for deals in the free market. The trend of low inventories toward the end of the crop year is becoming an increasingly important referential.

Thus, the leading analysts in Rio Grande do Sul predict average prices between 38 reais (US$ 16.42) and 40 reais (US$ 17.29) for the end of the current business year, and a public inventory enough only for 20 to 24 days of domestic supply, very close to what the Food and Agriculture Organization of the United Nations (FAO) considers to be the ideal volume.

Conab already admits that it will hardly maintain high inventories of rice in the next crop, which may point to a year in which the product should appreciate. The policy of weekly auctions should be maintained. However, increasing volume right now would be merely a palliative measure.

It would hold back prices for one or two weeks, but the "pendulum effect" would make itself felt later on, as inventories would be depleted at a faster rate. In the face of this scenario, the expectation was confirmed that the price of the 50-kilogram bag (58×10) in Rio Grande do Sul would be 36 reais (US$ 16.5) this week.

From Friday last week until last Thursday, prices rose from 35.94 reais (US$ 16.47) to 36.37 reais (US$ 16.67), according to an indicator supplied by the Cepea/Esalq/USP and the Brazilian Mercantile & Futures Exchange (BM&F). This is the final average selling price in Rio Grande do Sul, recorded on Thursday, October 9, for the 50-kilogram rice bag (58×10), freight included.

The price sets a new record high for 2008, even though in the free market deals have been done for up to 43 reais (US$ 19.71) involving noble varieties of rice. Given the oscillation of the dollar, the product is relatively low-priced, at US$ 16.62, after having sold for US$ 19.50 two weeks ago, and for US$ 15.67 on Tuesday. As a result of these figures, the price increase rate in October is 2.16%.

In the free market, according to the leading brokerages in Rio Grande do Sul, the average price currently ranges from 34.50 to 36 reais (US$ 15.81 to US$ 16.50) in the states of Rio Grande do Sul and Santa Catarina, which concentrate 70% of Brazilian production. The figure represents increase of 25 to 50 cents of real (US$ 0.11 to 0.23) over the values for the previous week.

Thus, in localities such as Cachoeira do Sul, Guaí­ba, Alegrete, Rosário do Sul, and Dom Pedrito, the value of deals actually closed occur ranged from 34.50 to 35.00 reais (US$ 15.81 to US$ 16.04). In Uruguaiana, São Borja, Itaqui and Pelotas the product arrives at the industry costing 35 to 36.50 reais (US$ 16.04 to US$ 16.73). As usual, the northern coast of the state gets differentiated prices for noble varieties of rice, of up to 44.50 reais (US$ 20.4).

The state of Santa Catarina, with a quite adjusted supply and low public inventories, recorded an average growth of 1.00 real (US$ 0.46) for deals. In the south of the state, rice averages at 35 reais (US$ 16.04) per 50-kilogram bag, but some deals reached up to 37 reais (US$ 16.96).

In the state of Mato Grosso, sales, for which supply was on the rise, saw a reduction once again this week. The best-selling variety is the Cirad rice, selling for up to 41.50 reais (US$ 19.02) per 60-kilogram bag in industries in the Greater Metropolitan Region of Cuiabá, the state capital.

Anba

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