Nov 12, 2009
A Weak U.S. Dollar May Result In Losses For Brazilian Soybean Producers
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
The 2009-10 Brazilian soybean crop is being planted early, the weather is good, prices are relatively good, and the crop could potentially be a record, so why are Brazilian farmers worried that they may loose money on this year's crop? The source of their concern is the weakening U.S. dollar compared to the Brazilian real.
According to the Mato Grosso Institute of Agricultural Economics (Instituto Mato-grossense de Economia Agropecuaria - Imea), soybean producers in Mato Grosso could potentially see losses as high as 20% for their 2009-10-soybean crop. The Brazilian currency has strengthened compared to the U.S. dollar faster than soybean prices have risen internationally. The strengthening Brazilian currency means that farmers in Brazil get paid less for their soybeans. When Brazilian farmers were planting their 2008-09-soybean crop, the exchange rate was 2.17 Brazilian reais per U.S. dollar. As they are planting their 2009-10-soybean crop, the exchange rate is 1.70 Brazilian reais per U.S. dollar.
The international price of soybeans is good, but not good enough to compensate for the falling dollar and since soybeans are priced in dollars, as the dollar gets weaker, Brazilian farmers are paid less for their soybeans. With potentially large soybean production in both North and South America, the situation could worsen even more if prices fall by the time Brazilian farmers start harvesting their crop in early 2010.
Producers in central Brazil are particularly worried because the cost of producing the soybeans and transporting them out of central Brazil are much higher than in southern Brazil.
The Brazilian government is also worried that the strengthening currency could undermine Brazil's competitive position especially with agricultural exports being so important to the country. As the local currency gets stronger, the price of Brazilian exports increase. The government has taken a series of steps in recent weeks in an effort to keep the currency from strengthening even further. The most recent action was to impose a 2% tax of speculative stock purchases, but it remains to be seen if this action will be effective.