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August 17, 2020

Brazilian Farmers Forward Contracting their Soy at a Record Pace

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

Brazilian farmers will start planting their 2020/21 soybeans in mid-September provided there is adequate soil moisture for germination and stand establishment. As they are preparing to start planting their soybeans, they are also aggressively forward contracting their anticipated 2020/21 soybean production.

The president of the Brazilian Soybean Producers Association (Aprosoja Brasil) estimates that as much as 50% of the anticipated 2020/21 soybean production has already been forward contracted. The grain analysts from Datagro, Flavio Roberto de Franca Junior, is estimating that 41.6% of the soybeans have been forward contracted compared to 20.1% last year and 18.6% average. The consulting firm Safras & Mercado estimates that 45% of the soybeans have been forward contracted and that it should increase to 55% to 60% by the time the soybeans are planted.

Regardless of the actual percentage, this is a record fast pace of forward sales of soybeans. The prior record for this time of the year was 26% sold in 2015. Brazilian farmers are eager sellers in order to take advantage of very good soybean prices.

Domestic soybean prices are strong in Brazil due to the devaluation of the Brazilian currency and a robust demand for soybeans both domestically and internationally. The Center for Advanced Studies in Applied Economics (Cepea) reported last Friday that the spot price for soybeans at the Port of Paranagua was R$ 126.23 per sack (approximately $10.70 per bushel), which is 49.2% higher than last year at this time when it was R$ 84.59 per sack (approximately $7.20 per bushel).

Generally farmers in Brazil do not like to forward contract more than about two-thirds of their anticipated production due to the uncertainty surrounding the weather. Currently, there is approximately a 60% chance that a La Nina will develop during the last three months of 2020. A La Nina generally results in dryer than normal weather in southern Brazil during the months of October-November-December.