May 08, 2018

Farmers in Mato Grosso are slow Sellers in Spite of Improved Prices

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

Farmers in Mato Grosso continue to be relatively slow sellers of their 2017/18 soybean production in spite of much improved prices. Actually, the improved prices may be the reason why they are reluctant to sell the remainder of their soybeans - it could be that they are waiting for prices to move even higher.

The Mato Grosso Institute of Agricultural Economics (Imea) recently reported that farmers in the state still have approximately 30% of their 2017/18 soybean production unsold. Imea estimates that approximately 9.2 million tons of soybeans in the state are unsold in spite of the much improved prices.

During the last week of April, Imea indicated that the price of soybeans in Mato Grosso averaged R$ 68.92 per sack (approximately $9.50 per bushel) compared to a year ago when they averaged R$ 52.24 per sack (approximately $7.20 per bushel). Therefore, the year-on-year increase in soybean prices is in the range of 32%.

Farmers in Mato Grosso generally forward contract some of their anticipated soybean production in order to purchase needed inputs. Most of the forward contracting in Mato Grosso was done at prices that barely covered their cost of production. Even though soybean prices are now above the cost of production, farmers are waiting for even better prices to lock in profits for their 2017/18 production.

The improved prices can be attributed to several factors including: a severe drought in neighboring Argentina that drastically reduced soybean production, significant premiums for soybeans at Brazilian ports, continued strong demand for soybeans, a weakened Brazilian currency, and a somewhat slow start to the U.S. planting season.

One of the biggest impacts on prices in recent days has been the weakening of the Brazilian currency. Recently, the Brazilian real has been trading in the range of 3.5 to the U.S. dollar. Since soybeans are priced in dollars, but paid in the local currency, a weaker local currency means that farmers put more money in their pockets for every sack of soybeans they sell.

There is uncertainty for soybean prices going forward. On the positive side, there is certain to be a weather market at some point during the U.S. growing season that could result in higher prices. On the negative side is the ongoing trade dispute between the United States and China. China has threatened to impose a 25% tariff on U.S. soybeans in response to threatened U.S. tariffs on Chines goods entering the United States.

The trade dispute between China and the United States could temporarily disrupt soybean prices especially in the United States, but it could also make Brazilian soybeans more valuable due the fact that Brazil would have the largest supply of readily available soybeans for the world market.