Oct 29, 2009
Prices For Forward Contracted Soybeans In Mato Grosso Below The Cost Of Production
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Soybean farmers in Mato Grosso who are trying to forward contract their soybeans are facing the lowest prices since 2007. Recent price declines on the Chicago Board of Trade have many farmers wondering how they will cover the cost of planting their 2009-10 soybeans much less making a profit. On Tuesday of this week in Primavera do Leste, located in southeastern Mato Grosso, the price being offered for delivery in February-April of 2010 was R$ 27.30 for a 60 kilogram sack. Last year at the same time, the prices were between R$ 40-43 for the same 60 kilogram sack delivered during the same timeframe. The prices being offered this year is approximately 26% less than what they were last year.
According to Conab, the cost of producing 3,000 kg/ha soybeans (43.5 bu/ac) in Primavera do Leste is R$ 1.847 per hectare or R$ 36.94 per sack, R$ 9.60 more than the current contract price. Needless to say, there is very little forward contracting occurring in Mato Grosso.
In addition to declining prices, the strengthening of the Brazilian currency compared to the dollar, makes the situation even worse. For about the last five years, the Brazilian currency has been gaining strength compared the U.S. dollar. This strengthening has been very bad news for Brazilian soybean farmers because the price of soybeans is determined in dollars, but the farmers is paid in Brazilian reals. Therefore, as the Brazilian currency gains against the dollar, the farmer puts less money in his pocket every time he sells a sack of soybeans. In other words, the strengthening Brazilian currency lowers prices paid to Brazilian soybean farmers. On many days, the exchange rate is actually more important to Brazilian soybean farmers than the price movement at the Chicago Board of Trade.
Farmers have been imploring the Brazilian government to do something about the strengthening currency. Not only are the farmers paid less for their soybeans when the currency strengthens, their soybeans cost more for foreign buyers as well. They feel that if the currency continues to strengthen against the dollar, their products will be less competitive against soybean products from the U.S. and Argentina.