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November 17, 2017

Weaker Currency Stimulates Corn Sales in Brazil

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

Brazilian farmers know that the exchange rate between the Brazilian real and the U.S. dollar is often times more important to their bottom line than the actual international price of the underlying commodity. Since the commodity is priced in dollars but paid in the local currency, a weaker local currency means that Brazilian farmers put more money in their pocket when they sell their grain. That reality was evident again during the month of October.

According to the Mato Grosso Institute if Agricultural Economics (Imea), by the end of October, the farmers in Mato Grosso had sold 90% of their 2016/17 record large corn crop. Corn sales increased 5% during October due mainly to a weaker Brazilian currency. The currency weakened during the month to approach 3.30 to the dollar, which translated into higher domestic corn prices.

Imea reported that the average sale price for corn in the state during October was R$ 16.74 per sack or approximately $2.35 per bushel. During the peak of the corn harvest in June and July, the corn price had fallen to the range of R$ 12 to R$ 14 per sack or approximately $1.70 to $2.00 per bushel depending on location.

For the 2017/18 corn crop, which will be planted in January and February, farmers in the state have forward contacted 11.8% of their anticipated production. This represents an advance of 6.5% during the month of October. A year ago at this time, farmers had forward contracted 25.5% of their anticipated production. The average forward contract price during October was R$ 16.77 per sack or approximately $2.35 per bushel.

Farmers in the state are forward contracting less corn this year due to the lower prices. Corn prices in the state were much higher last year due to a shortage of corn coming off of the disastrous 2015/16 growing season when corn production suffered significant reductions due to adverse weather conditions.

Mato Grosso is the largest corn producing state in Brazil and all the corn in the state is produced as safrinha production, which is planted after the first crop of soybeans are harvested. In their first estimate of the 2017/18 corn production in the state, Imea is estimating that the safrinha corn acreage may decline 10% and that the safrinha yield may decline 9% compared to last year. If that forecast is verified, the 2017/18 corn production in the state could end up being 4 million tons less than in 2016/17.