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April 22, 2020

Brazil Farmers Locked in Profits on 35% of Next Year's Soy Crop

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

The amount of forward contracting of soybeans in Brazil is setting records. In addition to having sold 80% of their 2019/20 soybean production compared to an average of about 60%, Brazilian farmers have already forward contracted 35% of their anticipated 2020/21 soybean production, which is record high for this time of the year. On average, approximately 15% of the next crop would be contracted by mid-April. The 2020/21 soybean crop will be planted next September-October-November and harvested next January-February-March.

The record fast selling pace has been motivated by high domestic soybean prices resulting from the devaluation of the Brazilian currency. The Brazilian currency has devalued by 30% or more since the first of the year and it is currently trading at 5.3 Brazilian reals per U.S. dollar.

The devaluation of the Brazilian currency has led to good profit margins for Brazilian soybean farmers. According to Fernando Pimentel from the consulting firm Agrosecurity Consultoria, soybean farmers that own their own land in the municipality of Sorriso, Mato Grosso, had profit margins of 20% to 25% on their 2019/20 soybean production. If the farmer rented land, the margins were in the range of 15% to 20%.

The profit margins in southern Brazil, where transportation costs are much less, were even higher with some soybean farmers having margins as high as 50%. Needless to say, it has been a long time, if ever, that they have seen profits so high.

The prices for soybeans at Brazilian ports have been hovering around R$ 100 per sack for several weeks. As a result, it's estimated that at least 25% of next year's crop has already been sold at prices high enough to cover their costs and guarantee good profits.