March 30, 2017

Brazilian Soybean Crop 45% Sold Compared to 65% Last Year

Domestic soybean prices in Brazil have declined significantly in recent weeks convincing Brazilian farmers to continue to be slow sellers of their 2016/17 soybean crop in the hope of better prices in the future. The prices for soybeans in Brazil have declined R$ 6 to R$ 7 per sack over the last 40 days (approximately $0.87 to $1.02 per bushel) and prices are now at their lowest point in two years. In the state of Parana for example, soybean prices are now below R$ 60 per sack in many areas or approximately $8.80 per bushel.

Brazilian farmers have sold approximately 45% of their anticipated 2016/17 soybean production compared to 65% last year at this time and 45% average. This year's selling pace is especially slow considering the rapid harvest pace and the fact that farmers have a record large soybean crop to market.

The soybean harvest in Brazil is approaching three-quarters complete and it will set a new record large production, maybe approaching 110 million tons (Brazil produced 96 million tons in 2015/16). Not only will the soybean production in Brazil set a new record, farmers in the United States are expected to plant a record large soybean acreage in 2017. A potential record large 2017 soybean crop in the U.S. could pressure soybean prices even further, potentially dashing hopes for improved prices any time soon.

A potential weather market in the U.S. could result in improved prices in Brazil, but that will probably not occur for at least several months, if at all. In the meantime, Brazilian farmers may be forced to sell some of their soybeans in order to make room for what is expected to be a record large safrinha corn crop.

Brazilian farmers are also closely watch the exchange rate between the Brazilian real and the U.S. dollar for a potential selling opportunity, but for now, the Brazilian currency is moving against Brazilian farmers. The currency is currently trading at about 3.1 to the dollar compared to a year ago when it was trading at 3.6 to the dollar. A stronger domestic currency generally results in lower domestic prices for Brazilian grain. Where the exchange rate goes from here is unclear, but one thing is clear, Brazilian farmers will be watching it closely.

Unfortunately, farmers in Brazil cannot look to their corn crop for financial salvation because domestic corn prices in Brazil are slumping as well. The 2016/17 full-season corn crop in Brazil was very good and the safrinha corn crop is expected to be record large. On top of that, domestic corn demand may decline in light of a tainted meat scandal that has the Brazilian meat sector reeling. The scandal is expected to depress meat exports, at least temporarily, which in turn could depress livestock production and domestic corn demand.