Apr 07, 2020

Last Week was "Best Week Ever" for Brazilian Grain Producers

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

While the world grapples with the Covid-19 crisis, Brazilian grain farmers quietly had their "best week ever" last week thanks mainly to the devaluation of Brazilian currency. The Brazilian real has devalued 32.7% since the first of the year (see chart below). Just last week, it devalued 4.3% to close at 5.32 reals per dollar. The weaken currency will result in higher production cost next growing season, but the benefits of the devalued currency outweigh the cost especially since it is devaluing just as Brazil is harvesting and exporting its largest grain crop - soybeans.

The impact of the Covid-19 crisis and subsequent devaluation of the Brazilian currency is uneven across the agricultural sector in Brazil, but grains are by far the big beneficiary. The domestic price for soybeans last week in Brazil reached R$ 105.00 per sack and the domestic price for corn reached R$ 60.00 per sack, both are record highs.

Not everyone is benefiting and some sectors of Brazilian agriculture such as biofuels are being profoundly impacted. The collapse of the oil market and increased social isolation has resulted in less ethanol demand and lower prices. The closing of bars and the cancellation of sporting and entertainment events is resulting in reduced beer sales. The demand for cotton will be weak as the world economies contract. Flower and ornamental sales are been severely impacted. The demand for fruits, vegetables, milk, etc. should be strong with more people staying home, but there are problems getting these perishable products delivered to consumers on time.

As we mentioned in last week's report, Brazilian farmers purchased their inputs for the 2019/20 crops when the exchange rate was approximately 3.9 reals per dollar and they are now selling their grain with the exchange rate at 5.3 reals per dollar. This has resulted in record high domestic prices and record high profit margins.

Brazilian farmers have already sold the majority of their 2019/20 soybean production and they are now generally holding back the remainder of their grain hoping for even higher prices.