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Weak currency supports Brazilian selling

The weak real is seeing real returns for Brazilian growers rising as markets fall

Reuters – Brazil might not be harvesting soybeans at a record pace, but farmers there are certainly selling their crops at a much quicker clip than usual due to the weak currency and uncertainty over how the U.S.-China trade deal will affect their business.

Brazil typically ships more than half of its annual soybean exports between March and June, and some 75 per cent of those head to China. Brazil’s January soybean shipments to China were down sharply from last year on more U.S. involvement, but American bean sales and exports to the world’s top buyer have cooled in recent weeks.

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The United States may have to ship a record volume of soybeans to China this year in order to satisfy the recently signed Phase 1 trade deal. That might not be so bad for Brazil if it results in a drastic reduction in U.S. soy trade with other countries, but Brazilian farmers smell the competition, especially with the uncertainty about demand from China amid its troubles with African swine fever.

As of Feb. 13 in Mato Grosso, Brazil’s top soybean-producing state, farmers had sold 68 per cent of their 2019-20 soybean crop, at least a five-year high for the date and well above last year and the five-year average, both 54 per cent. As of Friday, the crop was 45 per cent harvested, above the average of 32 per cent but behind last year’s record of 53 per cent.

Growers in Mato Grosso are thinking ahead to next year, too, having sold 13 per cent of their 2020-21 soybeans, the crop they will be harvesting a year from now. It is unusual for next year’s sales to begin so early. A year ago, none of the 2019-20 beans were marketed.

In Parana, Brazil’s No. 2 soybean state, farmers had sold 26.5 per cent of their current soybean crop by the end of January, similar to a year ago. Some 10 per cent of the area had been harvested as of Feb. 10, and that is well off the average of about 22 per cent.

Brazilian growers have the weak currency on their side, and that is making the sales of their crops particularly attractive as they are sold in dollars. The Brazilian real hit an all-time low against the dollar on February 13 above 4.38 per dollar, some nine per cent lower than at the start of this year.

The difference is apparent when relating the currency weakness to Chicago soybean futures. As of midday Thursday, the contract was trading just below US$9 per bushel, about two per cent lower than on the same date a year ago. But that same price in Brazilian reais is about 13 per cent higher today than a year ago.

Brazil’s own statistics agency, Conab, increased the soybean crop on Feb. 11 to 123.25 million tonnes from last month’s peg of 122.2 million. The U.S. Department of Agriculture also raised its outlook to 125 million tonnes from 123 million in January. However, some analysts believe Brazil could ultimately have a larger bean offering than either of those predictions.

Conab bumped Brazil’s total 2019-20 corn output to 100.5 million tonnes from 98.7 million a month earlier, slightly edging last year’s total of 100 million. USDA’s estimate was unchanged at 101 million tonnes. Domestic corn prices have recently hit a four-year high in Brazil on strong feed demand and use for ethanol, and that is despite the record 2018-19 harvest.

Corn sales are hot in Mato Grosso, the country’s top producer, where nearly all the corn is second crop. Brazil typically exports much of its second corn harvest, so a large portion always comes from Mato Grosso. Farmers there have sold 64 per cent of their 2019-20 corn, well above last year’s 47 per cent and the average of 44 per cent.

About the author

Columnist/Reuters

Karen Braun is a Reuters market analyst based in Chicago. The views in this column are her own.

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