Oct 06, 2015

Brazilians have Sold 37% of their 2015/16 Soybean Production

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

The weaker Brazilian currency has resulted in improved domestic grain prices and Brazilian farmers have taken advantage of the improved prices to aggressively forward contract their anticipated 2015/16 grain production. The Brazilian currency devalued 9.3% during the month of September and 23% since mid-July.

According to AgRural, by the end of September, Brazilian farmers had forward contracted 37% of their soybean production compared to 30% at the end of August and 13% in August of 2014. Farmers in the center-west region of Brazil, which includes the states of Mato Grosso, Goias, and Mato Grosso do Sul, have been the most aggressive with 42% of their soybean sold compared to 33% at the end of August and 15% in August of 2014. In southern Brazil farmers have sold 29% of their anticipated soybean production compared to 7% a year ago.

In the city of Sorriso, which is located in central Mato Grosso, the average selling price during September was R$ 62.45 per sack of 60 kilograms, which represented a 5% increase compared to August.

Brazilian farmers have also been aggressive in forward contracting their safrinha corn production as well. According to Brandalizze Consulting, farmers in Mato Grosso, which is the largest safrinha corn producing state in Brazil, have sold 40% of their safrinha corn production with prices in the range of R$ 20.00 to R$ 21.00 per sack. It's hard to compare this year with prior years because it is rare for Brazilian farmers to forward contract their safrinha corn this far in advance of planting.

In the state of Goias farmers have sold 12% of the safrinha corn production with only a small amount sold in the state of Mato Grosso do Sul.

The risk of further currency fluctuations in Brazil is still very high. Therefore, if the currency devalues further, then waiting to do more forward contracting was the correct strategy. If the currency starts to strengthen, then waiting to do more forward contracting was the wrong strategy.

Even though Brazilian farmers are just now starting to plant their 2015/16 soybean crops, they are already purchasing the inputs needed for their 2015/16 safrinha corn crop, which will be planted next January, February, and March. Imported items such as fertilizers and chemicals are now much more expensive due to the weaker Brazilian currency and the cost of producing the next corn crop is going to increase 15% to 20%.

Brazilian farmers are in a tricky situation because a change in the exchange rate would impact their production costs in exactly the opposite manor as it would impact the domestic grain prices.