Jan 25, 2018

Forward Soybean Sales have been slow in Brazil

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

Low soybean prices have convinced Brazilian farmers to hold back somewhat on the forward sales of their 2017/18 soybean crop, which they are just starting to harvest. Generally, by this time of the year, farmers in Mato Grosso would have forward contracted at least 50% or more of their anticipated soybean production. The Mato Grosso Institute of Agricultural Economics (Imea) is reporting that farmers in the state have forward contracted 42% of their soybeans compared to the 5-year average of 55.3%. Mato Grosso is the largest soybean producing state in Brazil.

The state of Parana is the second largest soybean producing state in Brazil and the Agriculture and Livestock Confederation of Brazil (CNA) is estimating that farmers in Parana have sold approximately 20% of their soybeans, which is about 3% less than last year. The soybean planting in Parana was delayed by dry weather last September and October and current wet weather is contributing to the delayed start of the soybean harvest. Farmers in Parana are expected to start harvesting their soybeans in early February.

Brazilian farmers are hesitant to sell their soybeans due to the current low prices resulting from record large soybean production in both Brazil and the United States last year. Brazil is currently on track to produce a soybean crop just slightly smaller than last year, but the situation in neighboring Argentina is more uncertain.

Dry weather and irregular rains in Argentina has dried out soils and started to negatively impact the developing soybean crop. If the soybean crop in Argentina ends up being disappointing, there may be a modest improvement in soybean prices and that is what Brazilian farmers are waiting to see.

The final soybean production in Argentina is still uncertain. Soybeans have an amazing capacity to recuperate from adverse conditions early in the growth cycle if the weather later in the growing season improves. Therefore, if the weather in Argentina improves in February and March, the lasting impact on the soybean crop from the current dry conditions may be minimal. If the weather in Argentina continues to be problematic, soybean prices going forward may improve modestly, and that is one of the reasons why Brazilian farmers have been hesitant to sell their soybeans.

On the other hand, the political landscape in Brazil could drive prices lower. The reaffirmation of the guilty verdict against former president Lula on corruption charges by a three panel appeals court has led to a strengthening of the Brazilian currency compared to the U.S. dollar. The Brazilian currency closed trading yesterday at approximately 3.15 to the dollar. A strengthening of the Brazilian currency generally results in lower domestic soybean prices.

Slow forward contracting may also aggravate the chronic shortage of grain storage in Brazil. The record large soybean and corn crops last year in Brazil forced farmers to use silo bags to store the excess production. A lot of those silo bags and permanent silos are still full of last year's production and with continued slow selling of this year's crop, Brazilian farmers may end up with even more storage problems in 2018.