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June 29, 2020

Currency Volatility Spurred Soybean Sales in Brazil

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

The last 4-5 months have been very good for Brazilian farmers thanks to a devalued Brazilian currency. Domestic soybean prices have been extremely good and farmers have sold 90% of their 2019/20 soybean production and they have forward contracted approximately 40% of their anticipated 2020/21 soybean production.

Farmers are using their profits to invest in their 2020/21 production. They have already purchased the majority of the inputs needed for the next crop and they have probably already covered the cost for the 2020/21 crop and they still have over half of their anticipated production left to sell.

In early May, the Brazilian currency had devalued to the range of 5.85 Brazilian reals per dollar. Since soybeans are priced in dollars but paid in the local currency, the devaluation of the Brazilian currency resulted in record high domestic prices for soybeans. During late May and early June the Brazilian currency strengthened to about 4.7 reals per dollar, but over the last three weeks, it has weakened about 10% and it closed last Friday at 5.46 per dollar.

The volatility of the currency has been remarkable. In a matter of a few months since March, the currency exchange rate went from 4.0 reals per dollar to almost 6.0 reals per dollar to back down to 4.7 per dollar and now back up to almost 5.5 per dollar. During this period, the currency exchange rate varied by 2, 3, or 4% per day!

During this period, Brazilian farmers have managed to lock in significant profits on both last year's crop and next year's crop as well.

Going forward, Brazilian farmers are expected to slow down any further sales of their soybeans while they wait for further clarity concerning the 2020 soybean production in the U.S. Brazilian soybean exports have been running at record high levels for several months and export volumes are expected to decline significantly going forward. Historically, domestic soybean prices generally strengthen late in the year when available supplies tighten ahead of the start of the new harvest in January.