Nov 04, 2009
Forward Selling Of Mato Grosso Soybeans Remains Slow
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Soybean farmers in Mato Grosso have been slow forward sellers of their 2009-10 soybean production. The soybean crop was planted early, the weather remains favorable for crop development and the farmers are optimistic that they will produce a good crop. Therefore, they are holding onto their soybeans not because they are uncertain about their total production. They are slow sellers because of low prices and the uncertainty surrounding the currency exchange rate between the Brazilian real and the U.S. dollar. Brazilian farmers are constantly watching the exchange rate because of its profound impact on the cost of producting soybeans (many of the chemicals and fertilizers are imported) and its influence when they are ready to sell their soybeans (soybeans are priced in dollars but paid in Brazilian reals). The Brazilian real closed yesterday at 1.745 reals per U.S. dollar.
Normally by early November, the soybean farmers in Mato Grosso would have sold about 75% of their anticipated soybean production. In November 2008, they had sold about 50% of their anticipated production. This year though, they have only sold approximately 20% of their production. For Brazilian producers, it's basically been a down market in recent months. Soybean prices have retreated from their peak earlier in the summer and the Brazilian real has strengthened compared to the dollar, which has the same effect as a lower soybean price. The result has been that Brazilian farmers have reined in their selling hoping for better opportunities in the future to sell their crop.
That type of strategy has paid off in recent years. Brazilian farmers are generally selling their soybeans at the same time that the U.S. soybean crop is subjected to weather risks. Acreage swings and price volatility in recent years have provided Brazilians good opportunities to sell their crop. There always seems to be a weather scare in the U.S. about the same time they are selling their soybeans
The soybean farmers in central Brazil are generally much larger than in the traditional areas of soybean production in southern Brazil. These large farmers rely on credit provided by the multinational grain companies instead of the federal government. The main farm program in Brazil is low interest production loans administered through the Bank of Brazil. The problem is that the amount of money is limited and the government gives preference to smaller farmers and to farmers who grow other crops instead of soybeans. The government feels that large soybean producers can fend for themselves. In Mato Grosso, the Bank of Brazil generally provides between 20-25% of the production credit needed to produce the soybean crop. The multinational grain companies generally provide between 40-50% of the production credit. The grain companies do not like this arrangement, but they have been forced into this position due to a lack of funds from the federal government.