March 29, 2016

Costs Increasing in Brazil, Farmers Purchasing Inputs for Next Year

The volatile exchange rate in Brazil has farmers already starting to purchase inputs for the 2016/17 soybean and cotton crops even though the soybean crop is not completely harvested and the cotton crop won't be harvested for several more months. The exchange rate between the Brazilian real and the U.S. dollar has been like a yo-yo in recent weeks depending on the daily news out of Brasilia and Washington.

Since approximately 70% of the fertilizers and nearly all the agricultural chemicals used in Brazil are imported and priced in dollars, the exchange rate is critically important for Brazilian farmers. The Brazilian currency has recently been trading at 3.6 to the dollar, which is much stronger compared to the over 4.0 to one it traded several months ago. As a result, imported items are now somewhat cheaper than they were several months ago and that is why Brazilian farmers have already started to purchase inputs for the next growing season.

The Mato Grosso Institute of Agricultural Economics (Imea) is estimating that the cost of producing the 2016/17 soybean crop in the state will be 12% more than the current crop that is being harvested. The forward contracts being offered by the grain companies for the 2016/17 crop are averaging R$ 63 per sack or 10.5% more than the forward contracts of a year ago. Therefore, their costs are increasing faster than the grain prices, so it is important for farmers to monitor the exchange rate for opportunities to purchase their inputs at lower prices.

For cotton producers, Imea is estimating that their 2016/17 cotton crop will cost 14% more than their current crop. The current cotton crop is still several months away from being harvested, but farmers are already purchasing inputs for the next cotton crop due to the stronger Brazilian currency. Normally, this is very early for purchasing next year's inputs, but as Imea indicated, making timely input purchases could make the difference between making a profit next year or losing money next year.