Jul 27, 2015

Brazilian Currency Devalued 4.79% Last Week Lifting Soy Prices

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

The big news in Brazil last week was the devaluation of the Brazilian currency against the U.S. dollar. For the week, the Brazilian currency devalued 4.79%. At one point last Friday the exchange rate hit 3.35 Brazilian reals per dollar, which was the weakest it has been in 12 years.

There is a general overall pessimism in Brazil that President Rousseff and her economic team are unable to stem the economic decline in the face of increasing inflation and unemployment. Local governments, as well as the federal government, continue to slash budgets and lay off thousands of workers in an effort to stem the red ink. Additionally, the continuing corruption scandal surrounding Petrobras and the Workers Party has resulted in President Rousseff's approval rating hitting an all-time low. The general consensus is that she is in over her head and there is little confidence that the economy will bottom out any time soon.

For farmers in Brazil, these recent devaluations are actually beneficial for their bottom line. Since corn and soybeans are priced in dollars, but paid in the local currency, any devaluation of the local currency is the same as a price increase for Brazilian farmers.

At Brazilian ports last week the prices offered for soybeans increased in the range of 0.5% to 3.3%. At the Port of Paranagua, the price offered for soybeans last week increased 3.3% to R$ 76.50 per sack of 60 kilograms. At the Port of Rio Grande the price increased 2.6% to R$ 77.50 per sack and at the Port of Santos it increased 1.1% to R$ 74.00 per sack.

These improved prices at the ports helped to lift soybean prices in the interior, but the overall impact was mixed. In the states of Parana and Rio Grande do Sul the price for soybeans increased 1.6% to 3.1%. In contrast, soybean prices in some of the principal production areas of Mato Grosso declined last week by 6.9% to 8.4%

Last Friday, the Brazilian Association of Vegetable Oil Industries (Abiove) increased their estimate for Brazilian soybean exports in 2015 to a new record of 50.5 million tons, which was significantly higher than their June estimate of 48.7 million tons. In 2014, Brazil exported 45.7 million tons of soybeans. Abiove also increased their estimate for the amount of soybeans that will be crushed in 2015 to 40.1 million tons. This is up 1.0 million tons from their previous estimate and 37.6 million tons that were crushed in 2014.

It remains to be seen how the devaluation and subsequent rise in soybean prices will impact the 2015/16 soybean acreage in Brazil, but domestic soybean prices in Brazil are certainly much better than what was anticipated just a few months ago.