March 6, 2017

Brazilian Farmers are Slow Sellers of their 2016/17 Soybeans

Brazilian farmers have been very slow sellers of their 2016/17 soybeans for a number of weeks. Farmers have been reluctant to sell their record large soybean crop for a number of reasons including: low soybean prices, logistical problems that temporarily lowered prices even more, increased private storage capacity, and a Brazilian currency that had been moving against them.

Farmers in southern Brazil comment that they would need a price of around R$ 75.00 per sack to become aggressive sellers (approximately $10.90 per bushel). Currently the prices in southern Brazil are in the range of R$ 62-65 per sack. In the center-west region, farmers would need a price of around R$ 70.00 per sack to become aggressive sellers (approximately $10.25 per bushel), but current prices are more in the range of R$ 60.00 per sack.

Several factors are looking a little more favorable for increased selling, at least in the near term. First of all, the Brazilian currency has started to weaken somewhat over the past week or two and that should help support domestic soybean prices. A couple of weeks ago, the Brazilian currency traded as strong as 3.03 to the dollar. Last Friday, the currency closed above 3.15 to the dollar, which was the most it had weaken on a daily basis in three months.

If the currency continues to weaken, it would support domestic prices. For Brazilian farmers, the currency exchange rate is often times just as important in determining domestic prices as the international price of soybeans. A weaker currency usually translates to improved domestic prices in Brazil.

Secondly, the logistical problems along highway BR-163 in northern Brazil are slowly being resolved. After being essentially impassable for several weeks due to heavy rains and poor road conditions, the flow of trucks north to the Amazon River along BR-163 should get somewhat back to normal this week. This will allow grain elevators in Mato Grosso to free up storage space and that should translate to improved prices for farmers. At one point, the road blockage had caused soybean prices to decline up to $ 0.75 per bushel in Mato Grosso because grain elevators had run out of storage space.

The bottom line is that I think farmer selling in Brazil will start to pick up again over the next few weeks, but it probably will not be robust any time soon. Brazilian farmers have been constructing additional on-farm storage in recent years, which will allow than to hold off on selling some of their remaining soybeans.

In the past, Brazilian farmers were rewarded with higher prices by waiting for a weather concern to develop in the U.S. It remains to be seen if waiting for a better price will be the correct strategy this year for Brazilian farmers.