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March 12, 2015

Brazilian Farmers increase Selling Pace, Mato Grosso Soy 59% Sold

The weakening Brazilian real (or strengthening of the U.S. dollar) has stimulated an increase in farmer selling in Brazil. Since grains are priced in dollars but paid in the local currency, any weakening of the Brazilian currency compared to the dollar represents a price increase for Brazilian farmers. As a result, the domestic prices for soybeans and corn in Brazil have risen in recent weeks despite slumping international prices.

Farmers have taken advantage of the recent domestic price strength to forward contract more of their anticipated 2014/15 soybean production. According to the Mato Grosso Institute of Agricultural Economics (Imea), as of the end of February, farmers in Mato Grosso had sold 59% of their anticipated soybean production. Sales would have probably been even higher were it not for the two week trucker strike at the end of February that disrupted commerce all across Brazil. Even with the recent surge in selling, the forward contracting of soybeans in Brazil still lags last year's pace of 70%.

The weakening of the Brazilian currency has been very dramatic. A year ago, it was trading at 2.34 Brazilian reals per dollar. By the end of February, it was trading at 2.88 to the dollar and yesterday it was trading at 3.12 to the dollar. The weakening of the currency is viewed as a vote of no-confidence in President Rousseff's economic policies as Brazil's economy faces increasing difficulties.

As a result of the weakening currency and higher domestic prices, Brazilian farmers can now anticipate making a profit on their 2014/15 soybean crop, which was not the case several months ago. The continued weakening of the currency is expected to stimulate additional selling as Brazilian farmers harvest more of their soybeans.