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December 1, 2015

Aggressive Forward Contracting by Brazilian Farmers Slows

Early in this year's growing season, Brazilian farmers were very aggressive in forward contracting their 2015/16 crops in order to take advantage of the relatively good domestic prices resulting from the devaluation of the Brazilian currency. At one point several months ago, the currency was trading at 4.2 to the dollar, but during the month of November, it traded in the range of 3.7 to 3.8 to the dollar. As a result of the stronger currency and the lower international prices, Brazilian farmers drastically slowed down their forward contacting.

Nationwide, farmers in Brazil have sold approximately 45% of their anticipated soybean production compared to 26% last year and 40% average. Mato Grosso is the largest soybean producing state and the farmers in the state have forward contracted 53% of their anticipated soybean production compared to 25% last year according to the Mato Grosso Institute of Agricultural Economics (Imea). During the month of November though, virtually all forward contracting in the state has come to a haul. Not only are farmers concerned about the declining prices, they are also concerned that if the weather does not improve soon they may have trouble fulfilling those contracts.

The second largest soybean producing state is Parana and according to the Department of Rural Economics (Deral), farmers in the state have sold 30% of their anticipated 2015/16 soybean crop compared to just 6% last year.

The earlier enthusiasm for forward contracting grain in Brazil is even more evident for the safrinha corn crop. There are limited national figures available for the amount of forward contracting of the safrinha corn crop, but farmers in Mato Grosso have forward contracted 50% of the anticipated safrinha corn production compared to 0% last year at this time. Some of the more aggressive farmers, who have contracted as much as 60% of their anticipated corn production, are now very concerned if they will be able to meet those commitments due to delays in soybean planting and subsequently delays in the safrinha corn planting.

This growing season has seen the most aggressive forward contracting in recent memory for both the 2015/16 Brazilian soybean and corn crops.