April 13, 2012

Brazilian Farmers Forward Contracting 2012/13 Soybean Crop

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

Brazilian farmers are looking for the 2012/13 growing season to be a much better than the drought-plagued 2011/12 growing season. The harvest of the 2011/12 soybean crop is nearly complete and farmers all across Brazil are disappointed with this year's soybean crop. Drought in southern Brazil and excessive disease pressures in the center-west region have resulted in a soybean crop that is nearly ten million tons less than last year (66 million tons vs. 75.5 million tons).

While production is down, soybean prices are near record levels in Brazil, which is helping to compensate for some of the lost production. Soybean prices are strong due to the disappointing crop in South America and American farmers opting to grow more corn and fewer soybeans. As a result, world stocks are very tight while at the same time demand for soybeans continues to increase. For Brazilian farmers the weakening Brazilian currency in comparison to the U.S. dollar is also a major factor for the surge in soybean prices. In order to take advantage of these excellent prices, soybean farmers across Brazil are already forward contracting some of their anticipated 2012/13 soybean production.

In the state of Mato Grosso, it is estimated that 50% of next year's soybean production has already been sold. Soybean producers in the state are also expected to continue expanding their soybean acreage. In their first estimate for the 2012/13 growing season, The Mato Grosso Institute of Agricultural Economics (Imea) estimates that the soybean acreage in the state will increase 4.8% (340,000 hectares) from 7.07 million hectares in 2011/12 to 7.41 million hectares in 2012/13.

Imea is also estimating that the statewide soybean yield for the 2012/13 crop will be 52.0 sacks per hectare (3,120 kg/ha or 45.2 bu/ac), which would be an improvement over this year's yield of 50.4 sacks per hectare (3,024 kg/ha or 43.8 bu/ac). If Imea's estimates are correct, the state could produce 23 million tons of soybeans in 2012/13 or an increase of 7.6%.

Rio Grande do Sul was the state most impacted by this year'Ls drought and the soybean harvest in the state is a little more than half complete, but farmers are already thinking about next year. Normally, farmers in the state start to forward contract their anticipated production in August as they prepare to purchase inputs for the next crop. This year though, they have already started forward contracting some of their 2012/13 production to take advantage of the high prices. Currently at the Port of Rio Grande, soybeans are being contracted at US$ 550 per ton, which is more than double the historic price.

While domestic soybean prices in Brazil are already very good, there is the possibility that they could move even higher especially if there is adverse weather during the U.S. growing season. U.S. stocks are very tight and if it appears that U.S. soybean production will be negatively impacted by adverse weather, demand will have to be curtailed by even higher soybean prices.