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April 20, 2012

Soybeans Soar to Record High Prices in Southern Brazil

The combination of a reduced South American soybean crop, lower soybean acreage in the U.S., and continued strong demand from China have combined to result to all-time record high prices for soybeans in the state of Parana. At the Port of Paranagua, soybeans have recently been bid at R$ 60 per sack of 60 kilograms and they haven't been below R$ 50 per sack for the last two months. These prices are even higher than during the last commodity peak in 2008.

In the interior of the state it's a similar story with prices at Ponta Grossa of R$ 57 per sack, which is well above the historic high. The weakening Brazilian currency has also been a major factor contributing to the record high prices. As recently as last fall, the Brazilian currency was trading at 1.53: 1 compared to the U.S. dollar. The Brazilian real is currently trading at 1.88: 1 compared to the dollar. Since soybeans are priced in dollars, but paid in the local currency, the weaker the Brazilian real, the more Brazilian farmers are paid for every sack of soybeans they sell.

One of the principal reasons for the record prices is the continued strong demand from China for soybeans. During the first three months of 2012, Brazil exported 4 million tons of soybeans to China compared to 1.8 million tons in 2011. During all of 2011, approximately 54% of the soybeans shipped out of the Port of Paranagua were destined for China, but during the first three months of 2012, that increased to 73% (1.0 million tons of the 1.3 million tons exported during the first three months of 2012 went to China). The soybean harvest in Brazil got under way earlier in 2012 than in 2011, so the export season started earlier as well, but the main driver for the strong exports was China's nearly insatiable demand for soybeans.

Record soybean prices are encouraging Brazilian farmers to plan early for their 2012/13 growing season. Brazilian farmers are expected to increase their soybean acreage a minimum of 3-5% or more and if the weather cooperates during the growing season, the 2012/13 Brazilian soybean production could hit 78 million tons or more. At the same time, Brazilian farmers are expected to reduce their full-season corn acreage in order to plant additional soybeans.

Farmers in Mato Grosso for example have already forward contracted more than 50% of the anticipated 2012/13 soybean production and they have purchased nearly three quarters of the needed inputs. Farmers in southern Brazil are also starting to forward contract their 2012/13 production and they are very glad to see record soybean prices after what has been a very disappointing growing season due to a severe drought.