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September 30, 2015

Brazilians Forward Selling Encouraged by Weaker Currency

Farmers in Brazil are taking advantage of the weakening Brazilian currency and forward contracting some of their anticipated 2015/16 soybean production. According to the Mato Grosso Institute of Agricultural Economics (Imea), farmers in Mato Grosso have sold 40% of their anticipated production compared to 11% last year at this time. Other market analysts such as Cerealpar, put the figure at 45% to 50%.

The consulting firm AGR Brasil indicated that large producers are the ones forward selling the fastest while small and medium producers have been the slowest. Brazilian farmers probably would have forward contracted even more of the soybean production were not for the fact that the currency is weakening much faster than anyone had anticipated.

Just last week, Credit Suisse Bank projected an exchange rate of 4.25 to the dollar in three months and 4.50 to the dollar in twelve months. The Brazilian real closed on Tuesday at a rate of 4.04 to the dollar. If the Brazilian currency continues to weaken, farmers would be better off if they waited to do more sales.

If it wasn't for the currency, the situation for Brazilian farmers would be much more complicated due to falling soybean prices. By late last week, the November contract for soybeans at the Chicago Board of Trade had fallen approximately 18% since the end of June, while during the same period, the dollar has gained 30% compared to the Brazilian real. As a result, domestic prices for soybeans and corn in Brazil have been increasing. Granted, their production costs have increased due to imported fertilizers and chemicals, but generally farmers in Brazil benefit from a weaker currency.