May 01, 2015

Brazilian Farmers now Worried about Stronger Brazilian Currency

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

The value of the Brazilian currency compared to the U.S. dollar has brought both hope and worry to Brazilian farmers. Two months ago when it was trading at 3.2 Brazilian reals to the dollar, Brazilian farmers were very pleased with the resulting increased prices being paid for their soybeans and corn. That optimism has now turned into a worry as the Brazilian currency strengthens against the dollar. It is now trading at 2.94 to the dollar and as a result, commodity prices in Brazil have declined.

The AgRural agency tracks the prices of soybeans in 31 different cities in Brazil and they reported that domestic soybean prices have declined 7% since the end of March which equates to a drop of R$ 4.40 per sack of 60 kilograms. For example, in Primavera do Leste, which is located in southeastern Mato Grosso, soybeans are now selling for R$ 54 per sack compared to R$ 59 per sack on March 31st. At the Port of Paranagua in southeastern Brazil, soybeans are now priced at R$ 65.50 per sack compared to R$ 70.00 per sack at the end of March.

Farmers who were quite enthusiastic a month and a half ago have now turned more cautious. As a result, farmers welling of this year's soybean crop has slowed. AgRural estimates that the 2014/15 Brazilian soybean crop was 40% sold at the end of February and 53% sold at the end of March. They have not yet released figures for April, but they are not expecting to see a big increase in selling during April.

Domestic corn prices in Brazil have also fallen. The consulting firm Clarivi reported that the average corn price in Brazil is R$ 24.20 per sack, which is down 2% for the month of April and 6% lower than in April of 2014. Corn prices have fallen not only due to the exchange rate, but also due to harvest pressures from the full-season corn which is 80% harvested in southern Brazil.

The exchange rate is also impacting the prices for imported items such as fertilizers as well. Many wholesalers were booking their new supplies when the Brazilian currency was at its weakest which meant that domestic fertilizer prices would increase. Those purchases are already on the books and the wholesalers will be forced to pass along the higher prices to the farmers.

The combination of higher prices and tightened credit has resulted in slow fertilizer sales in Brazil. According to the National Fertilizer Distributors Association (Anda), the amount of fertilizers delivered to farmers is down 5% compared to last year at this time. Additionally, farmers have been slow to purchase their fertilizers according to the fertilizer company Yara, which has a 25% market share in Brazil. The president of Yara feels the gap between fertilizer sales this year and last year is much greater than the 5% delays in deliveries would indicate.

There is a concern that delayed fertilizer purchases could result in delivery bottlenecks due to the poor logistics in the interior of Brazil.