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December 11, 2017

Brazilian Farmers Slow Sellers in spite of Increasing Prices

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

We have mentioned many times how important the exchange rate is for Brazilian farmers and that often times, the exchange rate is more important that the actual price of the commodity. Last week was another example of the importance of the exchange rate in Brazil.

The prices for soybeans in the interior of Brazil improved last week, while at the same time, the price of soybeans at the Chicago Board of Trade declined last week. Prices improved in Brazil due to the exchange rate and they declined in Chicago due to the prospects of improved rains in Argentina.

At the cities of Rio Verde in Goias and Itiquira in Mato Grosso, the price of soybean increased approximately 3.5% last week and it was all due the exchange rate. At Itiquira, soybeans sold for R$ 65.00 per sack last week (approximately $9.10 per bushel) and at Rio Verde, they sold for R$ 59.00 per sack (approximately $8.25 per bushel).

At one point last Friday, the exchange rate between the Brazilian real and the U.S. dollar hit 3.31 before closing on Friday at 3.29. Any time the Brazilian currency weakens compared to the dollar, it supports soybean prices in Brazil.

Even with the improved prices, Brazilian farmers are still slow sellers of their anticipated 2017/18 soybean production compared to last year and the five-year average. Safras & Mercado reported last Friday that Brazilian farmers had sold 26.7% of their anticipated soybean production compared to 28% last year and 33% average. A month ago, Brazilian farmers had sold 19.1% of their soybeans and the 7.6% advance in November is being attributed to the improved prices due to the exchange rate. The monthly average for soybean prices in Brazil during the month of November was the second highest monthly average in 2017.

In Mato Grosso, it is estimated that 32% of the soybeans have been sold and in Rio Grande do Sul, the estimate is that 15-20% have been sold.

The currency in Brazil has been fluctuating recently based on actions of the Brazilian Congress which has been struggling with pension reforms. Whenever it looks like the pension reforms may pass, the Brazilian real gets stronger. Whenever it looks like the pension reforms may fail, the real gets weaker.

The current volatility in the currency will continue into next year as Brazil approaches another contentious presidential election in October. If a populist candidate is leading in the polls, the currency may continue to weaken. If a more conservative candidate is leading in the polls, the currency may strengthen. Whichever way it may go, you can be sure that Brazilian farmers will continue to pay close attention to the exchange rate.