South America Calling

Blockades, Weak Real Dictate Brazil Soy Market

Harvest progress, yields and port backlogs are typically the subjects that occupy the participants of the Brazilian soy market at this time of year. But in 2015 two other issues have gained prominence -- truckers and currency.

Truckers have been front of mind over the last seven days, with their blockades stopping beans from reaching port, crushers and meat plants. The protest caused soy futures in Chicago to surge but paralyzed the local market.

The blockades were suspended late Tuesday, and farmers and traders are praying they do not return next week as Brazil tries to transport its record soybean crop.

Now soy farmers and traders are turning their attention to the second factor, more specifically the continued devaluation of the Brazilian real.

The real touched R$3 to the dollar for the first time since August 2004 on Wednesday, marking a 14% decline in 40 days.

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The currency's poor showing is positive for soybean farmers as it makes them more competitive.

On Thursday morning, soybeans were quoted at R$56 per bag for prompt delivery in Sorriso, Mato Grosso, up from R$53 a month ago despite the influx of the region's soybean harvest, which is now about three-quarters complete. The rate is actually higher than the R$52 recorded exactly one year ago, with the real's 23% slide in the period and lower freight rates offsetting the decline in Chicago futures.

The devaluation will provide many farmers with a small profit margin on soybeans planted on their own acres in most of Mato Grosso, despite losses due to dryness, when many feared losses this season.

Well-resourced Brazilian farmers have been slow to commit their 2014-15 crop. The currency bump prompted sales to increase in February, but they remain well behind last year.

Sales progressed seven percentage points to 40% complete as of Feb. 28 but that is still well behind the 57% sold at the same point one year before, according to AgRural, a local farm consultancy.

With the harvest now almost a third complete, farmers have a better idea how much soy they have to sell, which will embolden them to offer some more to trading companies.

But while price looks attractive, the possibility that the trend may continue and the currency will weaken further may prompt growers to keen back a portion as a hedge against a further slide.

Brazil's economy is vulnerable in a way it hasn't been for a long time -- growth is non-existent, inflation is surging and a massive corruption case at Petrobras, the state oil company, is destabilizing politics and paralyzing infrastructure work.

If farmers sell now, the real devalues, and then if farmers have to buy dollar-linked inputs for next year's crop at elevated rates, they will kick themselves.

(CZ)

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