Jul 25, 2018
Brazilian Farmers concerned about lost Sales Opportunities
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
With the United States and China fighting over tariffs, coupled with the fact that Brazil is the largest soybean exporter in the world, this should be the "best of times" for Brazilian soybean farmers. Unfortunately, the truck driver strike in May and the subsequent impasse over the higher freight rates has resulted in a cloud of uncertainty over the Brazilian soybean market.
The vast majority of the 2017/18 Brazilian soybean crop has already been marketed, so the uncertainty is now hanging over the 2018/19 soybean crop which farmers will start planting in mid-September.
The Brazilian Association of Vegetable Oil Industries (Above) stated that forward contracting of the 2018/19 soybean crop should be 7% higher than it currently stands, which means that farmers should have sold 9 million more tons of soybeans. In other words, the Brazilian soybean market has lost it "timing" so to speak.
Forward contracting of the 2018/19 soybean crop in Matos Grosso has stalled at 21% compared to last year when 33% had been sold according to the Mato Grosso of Agricultural Economics (Imea). Across all of Brazil, Abiove estimates that 16% of the 2018/19 soybean crop has been forward contracted.
The uncertainly over freight rates has basically frozen future negotiations. Grain companies do not want to commit to a price due to the uncertainties surrounding the freight rates. For their part, farmers do not want to negotiate a price in the hope that the higher freight rates will be declared unconstitutional by the Brazilian Supreme Court. Both parties need assurances of what the future freight rates will be before they enter into a sales agreement.
This impasse has been in place for over a month and a half and it probably will not end any time soon. The National Land Transportation Agency will not release a new freight rate table until after public hearing have been held over the next two weeks. New rates will not be released until after August 3rd at the earliest. The Brazilian Supreme Court is expected to weigh in on these rates, but their next public hearing is not scheduled until August 27th.
In the meantime, the higher freight rates will remain in place until further notice. The National Confederation of Industry (CNI) estimates that the average freight rates will increase in the range of 25% to 65%, but in isolated cases, the freight costs could increase more than 100%.
The demand for Brazilian soybeans has led to premiums at Brazilian ports as high as $2.50 over the Chicago Board of Trade price, but farmers cannot capitalize on the situation due to the freight impasse. The fear on the part of the farmers is that they may be missing a very good opportunity to sell soybeans. There have been reports in recent days that some forward contracting is taking place, but at a much reduced pace.
At some Brazilian ports, the price of soybeans is as high as R$ 90.00 per sack (approximately $10.75 per bushel). Soybean prices in the interior of Brazil are in the range of R$ 67.00 to R$ 88.00 per sack (approximately $8.01 to $10.52 per bushel).