Oct 31, 2017

Brazilian Currency Weakens - Brazilian Farmers Increase Sales

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

Last week was the latest example of what Brazilian farmers have long known, the currency exchange rate is often times more important than the price of the underlying commodity. The Brazilian real weakened last week resulting in an increased domestic price of soybeans that is now approaching the highest price levels of the year.

The Brazilian currency has weakened over the past week to finish trading on Monday at approximately 3.28 to the dollar. Earlier last week, it had hit 3.3 to the dollar, which was the weakest level since mid-July. This weakening is probably both a "Brazilian story" as well as a "dollar story."

A currency move is nearly always the result of a combination of factors and in the case of the Brazilian real, it was probably caused by a number of factors including:

The "Brazilian Story"

The "Dollar Story"

Regardless of why the Brazilian currency is weakening, the result has been improved domestic prices in Brazil which farmers have taken advantage of to increase their sales of any old crop soybeans they have left and to forward contract new crop soybeans as well.

By some estimates, Brazilian farmers may have increased their forward contracts by 4% to 5% last week to the range of 18% to 20% of their anticipated 2017/18 soybean production. Over the past few years, generally 35% to 40% of the new crop would be sold by this date.