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October 9, 2014

Some Brazilian Soybean Producers may lose Money in 2014/15

The lowest soybean prices in a number of years has left many Brazilian farmers concerned that they may lose money on their 2014/15 soybean production. With soybean prices hovering at the breakeven level in many regions of Brazil, farmers are pinning their hopes on making a profit on higher yields and a weaker Brazilian currency.

The 2014/15 Brazilian soybean crop is now 4-5% planted, which is about an average planting pace, but the planting progress is expected to slow down as farmers in central Brazil wait for additional rainfall to resume planting their crop. Brazilian farmers are expected to increase their soybean acreage 5% in 2014/15 and if the weather cooperates during the growing season, Brazil may produce 95 million tons of soybeans compared to the 86 million tons produced in 2013/14.

The record large crop expected in Brazil, coupled with a record large soybean crop in the United States (106 million tons) has led to an oversupply of soybeans and low prices on the world market. As a result, Brazilian farmers have been very slow to forward contract their 2014/15 soybean production. Estimates are that only 12% of the anticipated 2014/15 soybean crop in Brazil has been sold as farmers wait for either higher prices for their soybeans or a further weakening of the Brazilian currency.

Farmers in Brazil have been very slow to forward contract their soybeans with an estimated only 12% of the 2014/15 crop sold. They are waiting for either higher international soybean process or a weaker Brazilian currency. The Brazilian currency was trading at 2.25 to the dollar several months ago, but it weakened to 2.5 shortly before the recent presidential elections in Brazil. It has since strengthened slightly to 2.4 to the dollar, but the market is expecting the currency to trade in the range of approximately 2.5 to one in 2015.

In the state of Mato Grosso, the cost of producing soybeans is approximately R$ 43.72 per sack (approximately US$ 8.65 a bushel) based on an optimistic yield of 55 sacks per hectare (47.8 bu/ac). The prices being offered in the northern part of the state for soybeans delivered next March are hovering around R$ 40.00 per sack. Therefore, farmers in the state might be in the red with their 2014/15 soybean production if their yields are low, their costs are high, or the Brazilian currency does not weaken as expected.

Farmers in Parana are better positioned to make a profit on their soybean production in 2014/15 because their costs are lower and their yields are higher. The cost of production in the state is approximately R$ 42.15 per sack (approximately US$ 8.35 a bushel) based on a yield of 56 sacks per hectare (48.7 bu/ac). The price for March delivered soybeans in the state is in the range of R$ 52.00 per sack (US$ 10.25 per bushel). Therefore, farmers in Parana, which is the second largest soybean producing state in Brazil after Mato Grosso, are better positioned to turn a profit on the soybean production this year.

Brazil is expected to export 7% more from the soybean complex in 2015 (soybeans, meal, and oil), but gross receipts will be down year-on-year due to lower prices. Brazil is expected to export 48 million tons of soybeans, 14.5 million tons of meal, and 900,000 tons of soybean oil in 2015. At the current May prices for these products at the Chicago Board of Trade, the total receipts from the soybean complex exports will be US$ 8.6 billion less than in 2014.