May 18, 2012

24 Million Tons of 2012/13 Brazilian Soy Production Already Sold

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

Even though planting of the 2012/13 crop is still at least four months away, Brazilian farmers continue to be very aggressive in forward contracting their 2012/13 soybean production. Estimates are that 30% of next year's soybean production in Brazil has already been sold, which would represent approximately 24 million tons of soybeans based on an 80 million ton production.

The current record high soybean prices in Brazil are the result of strong international demand for soybeans and also a significant weakening of the Brazilian currency over the last few months. Soybeans are currently being sold at the Port of Paranagua for R$ 64 per sack of 60 kilograms. That price is based on the exchange rate between the Brazilian real and the U.S. dollar of 2:1. In March, the exchange rate was 1.75:1 and if that rate was used today, that same sack of soybeans would be selling for R$ 57.

The majority of soybeans contracted thus far in Brazil are in exchange for needed inputs of seed, fertilizers, and chemicals. These record prices for soybeans are helping Brazilian farmers limit the increase in their anticipated production costs compared to the value of their soybeans. As a result, it is taking fewer sacks of soybeans to cover their input costs this year compared to last year.

In the city of Londrina, which is located in northern Parana, it takes the equivalent of approximately 8.5 to 9.5 sacks of soybeans per hectare to cover the cost of the seed, fertilizers, and chemicals that will be needed to produce the 2012/13 crop. Last year at this time when soybean prices were lower, it took 10 or 11 sacks of soybeans per hectare to cover the same input costs.

A weaker currency has advantages and disadvantages for Brazilian farmers. The weaker currency results in higher prices for the soybeans, but it also means higher prices for imported goods such as fertilizers and chemicals. Even though the cost of producing soybeans in Brazil is expected to increase 15% to 20% in 2012/13, the prices paid for the soybeans have increased even more. The farmers who may be negatively impacted by the higher input prices are those who have not yet made their input purchases.

Some cooperatives in Parana estimate that 70% of their members have already purchased their basic required inputs for the 2012/13 crops. The Association of Parana Cooperatives (Ocepar) estimates that farmers in Parana will spend R$ 620 per hectare for seed, fertilizers, and chemicals, which is 20% more than the R$ 500 per hectare they spent last year.