South America Calling

Brazilian farmers are real worried about next year's soybean crop.

They are looking at fertilizer and chemical purchases for 2015-16 and seeing substantial price rises.

Soybean inputs for 2015-16 cost an average of R$1,995 per hectare ($651.96 per acre) in Mato Grosso during April, up 11% on R$1,794 per acre ($753.78 per acre) the year before, according to the Mato Grosso Agricultural Economy Institute (IMEA).

That in large part is due to the devaluation of the Brazilian real, which lost 22% against the dollar over the last 12 months. Speaking loosely, half of Brazilian soybean inputs are dollar linked.

Of course, that shouldn't be a concern as farmers are producing a dollar-quoted commodity and, looking at the dollar conversions in parenthesis, costs in greenbacks have fallen 14%.

But, just like for everyone else, the Brazilians' big problem is depressed international prices.

If you look at input costs in terms of soybeans, the ratios are concerning. In Mato Grosso, soybean inputs cost the average equivalent of 34.8 60-kilogram per hectare (31 bushels per acre) for next season, up 6.7% on last year. When you consider that average yields in Mato Grosso were around 52 bags per hectare, you can see that this is a big deal.

Based on the current IMEA cost projections, current prices and the average yields of the past two years, average margins are negative at minus R$30 per hectare (-$4 per acre).

It's an unappealing situation, especially when you bear in mind that the last two crops have not suffered any major weather damage. It is these tight margins that mean Brazil will likely reduce its soybean planted area for the first time in nine years next season. But that reduction will probably be less than 1 million acres out of 78 million acres.

The fact is that Brazilian soybean area is not very price sensitive. There are few other lucrative summer crop options in many areas and planting soybeans provides the opportunity to plant a second-crop of corn, which dilutes some of the costs.

Of course, this time last year the figures didn't look much better but farmers were bailed out by the devaluation between when they bought inputs and the harvest. They can't count on such luck this year, either via a further devaluation or a weather event in the U.S.

(AG)

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