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June 9, 2016

Dollar Trading at Lowest Level in a Year Compared to Brazilian Real

The U.S. dollar fell to its lowest level against the Brazilian real in a year on Wednesday, trading at 3.36 per dollar, which was more than a 2% decline for the day. This is the weakest level for the dollar since July 31, 2015.

Generally, a stronger Brazilian currency is bad news for Brazilian farmers. It makes Brazilian exports more expensive and since commodities are priced in dollars but paid in the local currency, farmers put less money in their pocket when they sell a sack of soybeans or corn.

Usually when the Brazilian currency strengthens compared to the dollar, it is reflected in lower domestic prices. That has not been the case this year because international commodity prices continue to surge higher due to concerns over potential adverse weather in the United States and tightening supplies, especially domestically in Brazil.

Corn prices in Brazil have been rising for months as the domestic supply of corn has reached the lowest levels in memory. This has forced livestock producers in southern Brazil to either import corn from Paraguay or Argentina or scale back their production. Prices for old crop soybeans have also raced higher domestically to nearly record high levels. From these lofty levels, the domestic price for soybeans and corn should be declining due to the stronger Brazilian currency, but the increase in international prices have compensated for the stronger currency.

A stronger local currency does have a benefit for Brazilian farmers because it lowers the price of imports such as fertilizers and agricultural chemicals.