Aug 01, 2018
Forward Selling Slow in Brazil due to Uncertainty over Freight Rates
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Farmers in Mato Grosso continue to be concerned about the higher freight rates impacting their forward selling and driving up their cost of production for their 2018/19 crops. Grain companies have been reluctant to even offer a price for soybeans or corn due to the uncertainty surrounding freight rates in Brazil. As a result, very little marketing has been done for the current safrinha corn and not all the remaining soybeans that have not been sold either.
In the municipality of Sorriso in central Mato Grosso, the safrinha corn is over 80% harvested and much of the corn is piled on the ground due to a lack of storage space. This is the dry season in central Brazil, so there is little harm to temporarily pile the corn outside. It needs to be picked up before the onset of the summer rains which usually start sometime in September.
Ever since the freight rates increased 20-40% as a condition to end the truck driver strike at the end of May, there has been very little selling of the current crop or forward contracting of the next crop. Estimates are that 50% of the current safrinha corn has not been sold. Farmers are reluctant to sell because of low prices, somewhat disappointing yields, and their hope that the higher freight rates will eventually be declared unconstitutional by the Brazilian Supreme Court.
Currently, the spot market for corn in Sorriso is in the range of R$ R$ 20.00 per sack (approximately $2.45 per bushel), which is down from where it was before the harvest started, but still high enough to allow for a profit. Soybean prices in Sorriso are in the range of R$ 64.00 to R$ 65.00 per sack (approximately $7.86 to $7.98 per bushel).
Farmers in Sorriso, which is the largest soybean and corn producing municipality in Brazil, are also very concerned about delays in fertilizer deliveries. Many farmers have not yet purchased their fertilizers due to higher prices resulting from the weaker Brazilian currency and the higher freight rates.
If the weather permits, soybean planting in Sorriso will start on September 15th. If the fertilizers do not arrive in time, farmers may apply less fertilizers or be forced to forgo any fertilizer application. Generally, soybean farmers in central Brazil apply yearly applications of phosphorus and potassium to maintain the soil fertility. If they skip a year, there is the possibility of lower soybean yields especially if the weather during the growing season is adverse. If they reduce their fertilizer applications or skip a year, and the weather during the growing season is favorable, their soybean yields may not suffer.
Certainly, they cannot skip two years of fertilizer applications. If that were to occur, soybean yields would suffer.