March 23, 2012

Soybean Prices in Brazil Reach near Record Levels

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

The combination of strong commodity prices and a weaker Brazilian currency is very good news for Brazilian soybean farmers. As a result, Brazilian farmers are able to sell their 2011/12 soybean production at near record high prices. Soybean prices are strong due to lower production in South America and concerns that U.S. farmers are going to significantly increase corn acreage at the expense of needed soybean acreage. The Brazilian currency is weakening due to the Brazilian's government concern that a strong currency is hurting Brazilian manufacturers and agricultural exports.

In the interior of the state of Parana, soybeans are being sold for R$ 50 per sack of 60 kilograms (approximately US$ 12.62 per bushel using an exchange rate of 1.8 Brazilian reals per dollar). At the Port of Paranagua, soybeans are being negotiated for R$ 56 per sack (US$ 14.15 per bushel). This is approximately 16% higher than the prices at the start of January, which were R$ 47 per sack.

As a result, farmers in Brazil are quickly taking advantage of these near record high prices and they have already sold between 50 to 60% of their 2011/12 soybean production.

The weakening of the Brazilian currency is exactly what Brazilian farmers have been asking for because a weaker currency makes their products more competitive in the world market and it acts the same as a price increase for the farmers. Soybeans are priced in dollars and as the Brazilian real gets weaker compared to the dollar, farmers are paid more in reals for every sack of soybeans they sell.

While this is good news for farmers in Brazil, unfortunately many farmers in southern Brazil have much less soybeans to sell due to the severe drought that negatively impacted their 2011/12 soybean production. In central Brazil, where the soybean yields were relatively good, farmers will come out of this growing season very well capitalized.

The good fortunes of the farmers in central and northeastern Brazil will be important as they start planning over the next few months for their 2012/13 growing season. It is these farmers in central and northeastern Brazil that have been expanding their soybean production in recent years. Farmers in southern Brazil actually reduced their soybean acreage in 2011/12 in favor of additional corn acreage.

Brazilian soybean farmers will be looking at three important factors as they begin planning for 2012/13 including: a continued weaker domestic currency compared to the dollar, U.S. soybean acreage, and the weather during the U.S. growing season. Any one or all three of these factors could result in continued strong domestic prices for soybeans in Brazil. Under the current scenario, it is estimated that Brazilian soybean producers will increase their 2012/13 soybean acreage by 3-4%. If the weather during the 2012/13 growing season cooperates, it is entirely possible that the 2012/13 Brazilian soybean production could be 9-10 million tons larger than the disappointing 2011/12 crop.