Oct 11, 2018
Stronger Brazilian Currency equates to Lower Grain Prices in Brazil
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Farmers in the municipality of Sorriso in central Mato Grosso have planted 30% of their intended soybean acreage according to president of the local rural producers syndicate. The weather is cooperating for the most part, with just a few fields that needed to be replanted due to dry conditions. Farmers are actively planting their soybeans and there is still plenty of time remaining in the ideal planting window.
Farmers are hoping for a big crop, but they are concerned about the higher cost of production and the currency exchange rate. The cost of inputs increased 25% to 30% this year due to two factors - a weaker Brazilian currency when the inputs were purchased and the higher mandatory freight rates to transport things such as imported fertilizers from the ports to the interior.
The currency exchange rate between the Brazilian real and the U.S. dollar always has a significant impact on domestic grain prices and we saw that again this past week. Soybean priced declined significantly over the past week due to the strong showing of Jair Bolsonaro in the first round of voting for a new Brazilian president. The second and final round of voting between the far-right candidate Bolsonaro who received 46% of the vote and the far-left candidate Haddad who received 29% of the vote will be held on October 28th.
As opinion polls indicated a strong showing for Bolsonaro, the Brazilian currency strengthened compared to the dollar. At one point several months ago, it traded up to 4.2 to the dollar. It is currently trading at 3.75 to the dollar. As the currency gets stronger, grain prices in Brazil decline.
In the municipality of Sorriso, which is the largest soybean producing municipality in Brazil, soybean prices dropped from R$ 70.00 to R$ 72.00 per sack last week (approximately $8.00 to $8.20 per bushel) to R$ 62.00 to R$ 64.00 per sack this week. The 10 real per sack decline equates to approximately $1.15 per bushel.
Domestic soybean prices have been very good in Brazil in recent months due to the trade dispute between the United States and China. As a result, farmers in Sorriso took advantage of the good prices to forward contract approximately 60% of their anticipated 2018/19 production.
The Mato Grosso Institute of Agronomic Economics (Imea) reported that statewide, farmers have sold 95.7% of their 2017/18 soybean crop at an average price of R$ 72.50 per sack (approximately $8.25 per bushel). Statewide, farmers have forward contracted 34% of their anticipated 2018/19 soybean production at an average price of R$ 67.09 per sack (approximately 7.65 per bushel).