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June 6, 2016

Domestic Soybean Prices Surge in Brazil

Not only are corn prices at record high levels in southern Brazil, old crop soybean prices at the Port of Paranagua are also hitting record levels. Soybean prices are expected to hit a record high price of R$ 100 per sack (approximately $13.00 per bushel) sometime soon. These record high prices are a function of three factors including: increasing international prices for soybeans, a weaker Brazilian currency compared to several years ago, and a slowdown of farmer selling.

It has been several years since international soybean prices have been at this level, and the last time they were this high, the Brazilian currency was trading at much stronger levels. It is the significant devaluation of the Brazilian currency that is allowing domestic soybean prices to reach this level in Brazil.

Brazilian farmers have also been slow to sell their remaining stocks of old crop soybeans. In mid-May there was still 30% of the Brazilian soybean crop that had not been sold. That estimate is three weeks old and certainly there are less soybeans to sell today. Farmers are also slow sellers because credit is going to be limited this growing season and the credit will come with higher interest rates. Therefore, the longer they wait to sell their soybeans, the less money they will have to borrow to plant their next crop.

At some point though, the domestic prices should be so attractive that Brazilian farmers will sell their remaining inventory. They are also in the process of purchasing their inputs for the next soybean crop, so I think they will sell most of their reaming soybeans over the next two months.

Two months ago when corn prices were surging in Brazil and soybean prices were languishing, I considered it a "slam dunk" that farmers in southern Brazil would plant more full-season corn and reduce their soybean acreage. The situation is now very much different. Corn prices are still very attractive, but the big difference now is that soybean prices have surged as well. If there is a weather concern in the U.S. this summer, soybean prices could go even higher.

Now, I am not so sure what will happen to the soybean and full-season corn acreage in southern Brazil during the 2016/17 growing season. This is the only location in Brazil where the two crops compete for the same acreage and right now, I would rate it a "toss up" as to which crop will win the acreage battle. Brazilian farmers like to grow soybeans just like American farmers like to grow corn. Given an equal opportunity between the two crops, Brazilian farmers will generally choose soybeans.

Not only is it possible that soybeans could hold their own against corn in southern Brazil next growing season, it is also possible that there could be a greater than expected expansion of soybean acreage in central and northeastern Brazil as well. The current prices are very attractive for Brazilian soybean producers, so this has to be watched closely going forward.