Jun 07, 2018

Soybean Prices Rise in Brazil Fueled largely by Weaker Currency

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The price of soybeans at the Brazilian ports increased on Tuesday heavily influenced by the exchange rate between the Brazilian real and the U.S. dollar. The Brazilian real closed on Tuesday at 3.81 to the U.S. dollar, which was the weakest close since March of 2016.

At the Port of Paranagua, the price of soybeans on Tuesday increased 1.7% to R$ 89.00 per sack (approximately $10.93 per bushel). At the Port of Rio Grande, the price of soybeans increased 1.7% to $R 86.00 per sack (approximately $10.56 per bushel).

In addition to the stronger dollar, premiums also increased on Tuesday. At the Port of Paranagua, the premiums over Chicago for the nearby months was $0.85 per bushel with the distant months over $1.00 per bushel.

The weaker currency was the result of the Brazilian economy showing weak growth in recent months. The recent 10-day truck driver strike in Brazil is expected to make the situation worse. The strike basically ground the Brazilian economy to a halt, costing billions of dollars in lost sales, products, and productivity.

In order to end the strike, the government agreed to reduce the price of diesel fuel supplied by state-owned Petrobras. The company must now sell diesel fuel at a loss at least until the end of the year at a cost of tens of billions of dollars. The other major concession made by the government was to increase the freight rates in Brazil by approximately 150%. Since the vast majority of goods in Brazil moves by truck, the higher freight rates are expected to increase the cost of doing business as well as consumer prices.

The political uncertainty also played into the ongoing weakening of the Brazilian currency. New presidential elections will be held in early October with potentially a dozen candidates vying for the presidency. The current president, Michel Temer has been so weaken by the truck driver strike, that his package of fiscal reforms will probably not pass the Brazilian Congress. These reforms are very unpopular and without those reforms, the fiscal situation of the federal government is expected to weaken.

With such a high level of uncertainty, companies are hesitant to invest until the political situation becomes clearer.