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November 17, 2016

Weaker Currency Increases Sales in Brazil, Still Behind Last Year

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

For the last several months, Brazilian farmers were slow sellers of their 2016/17 soybean crop due to low international prices, high production costs, a stronger local currency, and limited opportunities to lock in a profit. The situation has now changed and farmers have started to forward contract more of their anticipated soybean crop.

In the state of Mato Grosso for example, the Mato Grosso Institute of Agricultural Economics (Imea) reported that only 27% of the state's soybeans had been sold by early July with the vast majority of those sales made with grain companies in exchange for needed inputs. Sales increased only 2% from July through August and then they increased 8% more from October 1st through November 14th with the majority of the sales occurring last Thursday and Friday due to a devaluation of the Brazilian currency. Even with the recent sales, the selling pace is far behind that of last year. As of now, 36% of the crop has been sold compared to 53% last year at this time.

Due a combination of factors including the U.S. presidential election and renewed political uncertainty in Brazil, the Brazilian currency devalued more than 8% compared to the U.S. dollar since earlier last week. Any time the Brazilian currency weakens, it results in higher domestic grain prices in Brazil. As a result, the March soybean futures in Brazil are approximately $11.60 per bushel and the improved price encouraged farmers to increase sales.

The forward selling of the anticipated corn crop in Mato Grosso, which will be harvested in mid-2017, has been even slower than for soybeans. Imea reported that only 24% of the anticipated corn crop has been sold compared to 70% last year at this time. Farmers have been very cautious about selling their corn because of last year's disastrous safrinha corn crop. Many farmers over sold their corn only to be faced with hot and dry weather that devastated their corn production. The result was that many farmers could not fulfill their contracts or pay their production loans. This has made farmers much more cautious in selling their corn.