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May 25, 2012

Brazilians Already Sold 25-26 mt of their 2012/13 Soy Production

Brazilian soybean farmers are locking in profits by forward contracting their 2012/13 soybean production. In spite of a recent softening in soybean prices on the Chicago Board of Trade, domestic prices for soybeans in Brazil continue to be near record levels and as a result, farmers are forward contracting their 2012/13 production at a record pace.

Nationwide, approximately one-third of the anticipated 2012/13 Brazilian soybean crop has already been sold, which equates to 25 to 26 million tons of soybeans. Farmers in In Mato Grosso lead the way with 45% sold or 9 million tons. Farmers in Parana have sold 15% of their production or 2 million tons. In more normal years, these levels of sales are generally not seen until September-November.

Farmers in Brazil generally forward contract their soybeans in exchange for needed inputs such as seed, fertilizers, and chemicals. Since Brazil imports two-thirds of its fertilizers, the prices for fertilizers have spiked in recent months as the value of the Brazilian currency has weakened. The currency is currently trading at 2.03 to the dollar, whereas a year ago it was 1.6 to the dollar. As a result, in the last month alone, fertilizer prices in Brazil have risen 10% to 20%. The price of fertilizers generally account for at least 15% of the total production cost for growing soybeans in Brazil and in 2012/13, it might even surpass that level.

According to the Mato Grosso Institute of Agricultural Economics (Imea), the total costs of seed, fertilizers, and chemicals in the state have risen 13.7% over the last month. According to Imea's figures, the cost of those three inputs now totals R$ 1,059 per hectare. The total cost of producing soybeans in the state is now estimated at R$ 1,967 per hectare, or up 9.4% from R$ 1,816 per hectare in March.

For the Brazilian farmers who have already locked in their production costs by forward contracting their soybeans, they are expecting margins of at least 30% on their 2012/13 soybean production.