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August 18, 2016

Brazilian Farmers have Slowed Soybean Selling due to Falling Prices

As farmers in Brazil prepare to start planting their 2016/17 summer crops, the combination of a strengthening Brazilian currency and lower international soybean prices have them concerned. Brazil is the world's leading exporter of soybeans and the second leading exporter of corn and a stronger Brazilian currency makes Brazil's exports less competitive in the world market.

Recently, the Brazilian real has been trading as strong as 3.1 to the dollar, which is the strongest it has been in over a year. Most market observers are crediting the stronger currency to the fact that Brazilian President Dilma Rousseff will likely be impeached and removed from office later this month. It has strengthened much more than had been anticipated and analysts are divided on the future prospects for the currency.

Up until a number of weeks ago, Brazilian farmers were selling their remaining soybeans from the 2015/16 crop for very good prices. In the city of Sinop in northern Mato Grosso, farmers were selling their last remaining soybeans for R$ 83 to R$ 84 per sack (approximately $12 per bushel). The price of soybeans in the region has now fallen to R$ 63 per sack (approximately $9.10 per bushel) and as a consequence, farmers have slowed their selling pace.

According to the consulting firm Franca Junior, Brazilian farmers have sold approximately 85% of their 2015/16 production as of August 5th, which was up only 2% for the past month. This selling pace is about equal the average for the last five years. In the state of Mato Grosso, the Mato Grosso Institute of Agricultural Economics (Imea) estimates that 95.2% of the 2015/16 soybean crop has been sold, which is 1.2% more than last year.

Looking forward, farmers are also not very encouraged. Brazilian farmers have forward contracted approximately 20% of their anticipated 2016/17 soybean crop, which represented an increase of only 3% during the month of July and it is behind last year's pace of 26%.

Several months ago, the forward contracts for soybeans were in the range of R$ 68 to R$ 70 reals per sack (approximately $9.25 per bushel), but the prices have now retreated to R$ 57 to R$ 58 per sack (approximately $8.30 per bushel) and farmers have basically stopped selling. Commodity traders in Brazil are expecting continued slow sales until January and the start of the new soybean harvest.

Record corn and soybean production in the United States, which was confirmed by the release of the August Crop Report last Friday, is expected to keep pressuring prices for both crops.