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October 18, 2018

Stronger Brazil Currency results in Declining Grain Prices in Brazil

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

The stronger Brazilian currency has resulted in declining prices for corn and soybeans in Brazil and as a result, any additional selling of farmer's remaining supplies of their 2017/18 grain production has nearly stopped. The decreased sales are the result of at least a 10% decline in domestic grain prices in recent weeks. According to the chief analysts from T&F Consultoria Agroeconomica, the sales to both the domestic market and the export market has slowed to a trickle and the steep drop in price is primarily due to stronger Brazilian currency, which has strengthened as it became more plausible that Jair Bolsonaro would become Brazil's next president. Bolsonaro is expected to win the runoff election for president on October 28th.

The Center for Advanced Studies in Applied Economics (CEPEA) indicated that for the month of October, corn prices in Campinas, Sao Paulo have declined 7.3% to the range of R$ 36.00 per sack (approximately $4.10 per bushel depending on the exchange rate).

Interestingly, the stronger Brazilian currency is now making the importation of corn from Paraguay more feasible. Corn prices in Paraguay are in the range of R$ 33.00 per sack compared to R$ 35.00 to R$ 36.00 per sack in western Parana and R$ 38.00 per sack in western Santa Catarina. Paraguay still has approximately one-third of its 2017/18 corn production to sell.

Over the past year, officials from Brazil, Argentina, and Paraguay agreed to phytosanitary standards and ports of entry for Paraguayan corn to be imported into southern Brazil, especially the state of Santa Catarina, which is the largest hog producing state in Brazil.

Southern Brazil is the center of poultry and hog production in Brazil, but the region cannot produce enough corn to meet the local demand. Therefore, livestock producers have traditionally turned to states such as Mato Grosso to import their needed corn supplies. Trucking in corn 2,000 kilometers from Mato Grosso has always been very expensive and it is going to be even worse with the new mandatory higher freight rates that took effect two months ago.

Everyone in the agricultural sector is hoping that these mandatory freight rates will eventually be declared unconstitutional by the Brazilian Supreme Court, but no decision is expected until sometime in November at the earliest. In the meantime, the uncertainty surrounding the currency exchange rate and the freight rates have put most sales on hold.

The Department of Rural Economics (Deral) indicated earlier this week that 85% of the full-season corn has been planted and the crop is rated in good condition.