April 29, 2011

Farmers in Brazil Already Selling Their 2011/12 Soy Production

According to the Mato Grosso Institute of Agriculture Economics (Imea), 12% of the anticipated 2011/12 soybean production in the state has already been forward sold by farmers in the state. This is the first time this has occurred during the months of March and April while farmers were still harvesting their current soybean crop. In 2010, the 12% level of forward sales was not reached until later in the month of May.

It is a reflection of the optimism on the part of the farmer that they will have a good crop and they do not want to miss out on the current price strength and an opportunity to lock in profits on their soybean production.

Farmers in Brazil forward sell their grain to the multinational grain companies generally in exchange for the purchase of inputs from the same company. This allows farmers to lock in the price of their soybeans and the costs of their inputs as well. Farmers in Brazil are concerned that the demand for fertilizers worldwide will push up prices before their next planting season which will begin in September, so therefore, locking in those costs now could potentially save money in the long run.

Analysts in Brazil are recommending that farmers be cautious in the amount of soybeans they forward contract. There is always the possibility that prices could move higher and they might miss out on the opportunity for even better prices. In contrast, the exchange rate in Brazil is moving against the farmers as the Brazilian currency reaches its strongest point compared to the dollar in the last two years.

The prices for forward contracted soybeans remain higher than the historical average for the state. In Campo Verde soybeans are being contracted for R$ 36.50 per 60-kilo sack (US$ 10.63 per bushel), in Canarana the price is R$ 40.00 per sack (US$ 11.65 per bushel), in Primavera do Leste it is R$ 37,00 per sack (US$ 10.78 per bushel), in Sapezal it is R$ 36.50 per sack (US$ 10.63 per bushel), and in Lucas do Rio Verde it is R$ 34.60 per sack (US$ 10.08 per bushel).