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May 25, 2016

Mato Grosso Farmers have purchased 55% of next Year's Inputs

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

The currency exchange rate in Brazil is often times as important to Brazilian farmers as the actual price of commodities. The exchange rate is always on the minds of Brazilian farmers and it can be a major factor as to when they sell their crops and when they purchase their inputs. That is the case once again in Brazil as farmers take advantage of a stronger currency to start purchasing their inputs for the 2017/18 growing season. The exchange rate for the last several months has been hovering around 3.5 Brazilian reals per dollar, which is significantly stronger than at the first of the year.

The Mato Grosso Institute of Agricultural Economics (Imea) is estimating that farmers in the state have already purchased 55% of the inputs needed for their next soybean crop.

The increase in soybean prices have also encouraged farmers to accelerate their forward contracting of soybeans. According to Consultoria Celeres, Brazilian farmers have already forward contracted 16.5% of their anticipated 2016/17 soybean production as of May 13th. The five year average for forward contracting in mid-May is approximately 5%.

The forward contracting involves mostly farmers bartering with grain companies as they agree to deliver a set quantity of soybeans in March of 2017 in exchange for the needed inputs to plant their soybean crop starting in September. Farmers would rather obtain their inputs through the grain companies instead of borrowing money either from the government at subsidized interest rates or from the bank at very high interest rates - usually above 20% depending on the individual's financial situation.

It is estimated that farmers in Mato Grosso have been very aggressive and have sold 25% of their anticipated 2016/17 soybean production for an average price of R$ 70.00 per sack for delivery next March. Farmers in Parana have sold 20% of their soybean crop for an average price of R$ 80.00 per sack, and farmers in northeastern Brazil have sold 15% for average of R$ 70.00 to R$ 75.00 per sack. At the Port of Paranagua soybeans for March export are being bid at R$ 89.00 per sack.

These are very attractive prices for Brazilian farmers and Celeres is anticipating that the Brazilian soybean acreage will increase in 2016/17 and that Brazil could produce more than 100 million tons of soybeans.