BRAZIL DEBT SEEN PARTNER TO HARD SELL TACTICS

  Brazil's recent announcement of a
  suspension in interest payments on 68 billion dlrs of foreign
  debt gave the banking system the jitters and confirmed views
  among many international economists and commodities analysts
  that Brazil will continue to flex its trading muscles in 1987.
      The developing world's most indebted nation is also its
  most prolific exporter of agricultural commodities such as
  coffee and soybeans, and might maximize foreign exchange
  revenue by selling hard on world markets, economists said.
      "That sounds like a reasonable strategy. But there is no
  way they can trade their way out of this situation," Aldo
  Roldan, Vice President for International Services at Chase
  Econometrics, said.
      Roldan told Reuters that Brazil not only had to tackle the
  problems of satisfying domestic demand and competing on glutted
  world markets, but also had to work to make its position on
  foreign exchange markets more profitable.
      "Domestic costs have increased (due to inflation) and
  exporters have not had the same offsetting movement in exchange
  rates," Roldan said.
      The Chase economist also said commodities markets were
  depressed and generally did not appear very promising for a
  country like Brazil, where pure commodities account for some 50
  pct of exports and in 1986 had a total value of around 23
  billion dlrs.
      But he added: "They are always pretty aggressive and they
  have good foreign marketing channels."
      Analysts said a key factor in Brazilian trade will be
  coffee, and even without background pressure from foreign
  creditors the world's largest producer was expected to hit the
  market this year with a vengeance.
      Negotiations between International Coffee Organization
  (ICO) members to re-establish producer export quotas broke up
  earlier this week with major producers and consumers accusing
  each other of intransigence.
      "Brazil would not tolerate a change in ICO regulations,
  which others wanted changed," one senior coffee dealer said.
      The dealer, who declined to be named, said Brazil wanted to
  preserve its market share. At the end of the talks, he said
  Brazil hinted it could sell more than anyone else and others
  would suffer.
      Brazil will be an aggressive seller under any scenario but
  as yet there is no sign of unusually heavy Brazilian sales, the
  dealer said.
      "If they do come into the market at this level it will go
  lower and you could breach a dollar, ninety or eighty cents,"
  he said.
      New York coffee futures for May delivery settled 2.29 cents
  lower Thursday at 104.68 cents a lb, while more distant
  deliveries fell the six-cent maximum trading limit.
      President of the Brazilian Coffee Institute, Jorio Dauster
  told a press conference in Rio de Janeiro today that Brazil has
  no set target for its coffee exports following the breakdown of
  the ICO talks on export quotas.
      Many economists and analysts believe soybeans could be the
  focus of possible stepped-up Brazilian marketing efforts. "They
  will be more aggressive this year than they have ever been,"
  according to Richard Loewy, analyst for Prudential-Bache
  Securities Inc.
      Loewy believes the foreign debt problem, a good crop, plus
  difficulties with storage would help motivate selling of the
  Brazil soybean crop. "Brazilian farmers also need cash flow and
  they can't afford to store the crops," he said.
      The Chicago soybean complex has been nervous for some time
  about large South American crops developing under near ideal
  conditions towards record yields.
      "We are going to see a very rapid decline, earlier than
  usual, this year in our (U.S.) exports," Loewy said.
      Tommy Eshleman, economist for the American Soybean
  Association (ASA), said this year's Brazilian soybean harvest
  could total 18 mln tonnes, versus 13.7 mln last year.
      Marketings will be very aggressive this summer when prices
  are usually high relative to the rest of the year due to the
  vulnerability of the U.S. crop to bad growing weather.
      Another incentive to sell might be trade anticipation of a
  reduction in the U.S. government soybean loan rate, offered to
  farmers who give crops as collateral, Eshleman said.
      He said there has been some uncertainty this year about the
  soybean loan rate, which acts as an effective floor for prices
  by keeping supplies away from the free market. Farmers can
  forfeit their beans to the government rather than repay the
  loan.
      "We're getting into a period when they (Brazil) are
  starting to harvest and starting to export," Eshleman said. But
  he added it will be a while before U.S. exports fall to below
  10 mln bushels a week from around 20 mln bushels currently.
      Jose Melicias from the research department of Drexel
  Burnham Lambert said Brazil would be trying to export as much
  as it can this year because of its economic situation.
      He said the debt situation was a major consideration. "The
  Brazilian government also does not have enough money to pay for
  storage," he added.
      Asked if a return to an inflationary environment in Brazil
  would make farmers inclined to hold onto crops, Melicias said
  it would not make a big difference.
      On other commodity markets, Brazil's selling impact may be
  muted no matter its need to generate capital.
      Brazil is faced with a poor 1986/87 sugar harvest, which
  could limit exports to the world market, analysts said. The
  country may have oversold and be unable to honor export
  commitments, and this plus higher domestic demand caused by
  consumer price subsidies on ethanol and refined sugar, will
  give it little room to stretch exports, they said.
      Brazil's other major crop, cocoa, is in its third year of
  surplus. "Cocoa consumption is basically flat and last year it
  fell, so I don't think they can start throwing out cocoa and
  find many more markets for it," one analyst said.
      "If they come out as aggressive sellers, the market would
  collapse and they can't afford to do that," she added.
  

