August 12, 2015

25% of Brazil's 2015/16 Soy Crop Already Sold, Prices are Good

Farmers in Brazil have taken advantage of the declining Brazilian real to aggressively forward contract some of the anticipated 2015/16 soybean production. According to AgRural, by the end of July Brazilian farmers had forward contracted 25% of their anticipated 2015/16 soybean production. By comparison, last year at this time they had forward contracted only 7% of their anticipated production.

Forward selling is most advanced in the center-west region where 29% of next year's crop has been sold. In southern Brazil approximately 21% of next year's crop has been sold with 22% sold in northeastern Brazil. For the 2014/15 soybean crop in Brazil, 82% of the crop has been sold.

Grain companies in Mato Grosso are giving farmers more time to deliver their soybeans early next year because they are concerned that their silos may still be full of safrinha corn at the time the soybean harvest begins. Farmers in the state have harvested approximately 70% of their record large safrinha corn crop and grain elevators have been forced to pile the corn in the open-air due to a lack of storage space.

That is not much of a problem currently because it is the dry season in central Brazil, but those piles will need to be picked up by the time the summer rains begin again in September. On a side note - it is currently very dry in Mato Grosso and last Thursday there was a fire in the municipality of Deciolandia in west-central Mato Grosso that consumed 10,000 hectares of standing corn (24,700 acres) as well as tractors and agricultural equipment.

Certainly a big factor in this aggressive pricing is the weakening Brazilian currency which has devalued approximately 25% since the first of the year. The result has been rising domestic soybean prices in Brazil. In Rondonopolis, Mato Grosso, farmers are contracting soybeans at R$ 64.00 per sack for February delivery. In Rio Verde, Goias, it is R$ 66.00 per sack and in Sao Gabriel do Oeste, Mato do Sul, it is R$ 62.00 per sack, both for February delivery. It is even better in Rio Grande do Sul where prices are in the range of R$ 72.00 per sack for April delivery.

These prices are quite good for Brazilian farmers and even though the weak currency is driving up their cost of production, farmers in Brazil are expecting to make money on their 2015/16 soybean crop. Therefore, I continue to feel that the 2015/16 soybean acreage in Brazil will expand by 3-5% or more. If the international price of soybeans would increase due to a disappointing soybean crop in the U.S. or if the Brazilian currency continued to weaken significantly, there would be even more incentive for Brazilian farmers to increase their soybean acreage.

Grain production in Brazil has changed drastically in recent years. For commercial grain farmers in Brazil, soybeans and corn no longer compete for the same acreage. There is basically a monocrop of soybeans for the first crop and a monocrop of corn for the second crop. Therefore, the rate of soybean expansion is dependent on the price of soybeans and not on the ratio between soybean prices and corn prices - they don't compete with each other for acreage in Brazil. If the prices for soybeans are good, Brazilian farmers will continue expanding their soybean acreage.

Corn production in Brazil is now less dependent on price than it used to be. Corn now tags along with soybeans, so as the soybean acreage increases, it automatically offers more opportunities to plant a second crop of corn as well. Of course, prices will still influence the corn acreage in Brazil, but not to the same degree as they used to.