South America Calling

Futures, Forex Bump Grabs Brazil Soy Farmers' Attention

The recent run-up in soybean futures and dips in the Brazilian real against the dollar have got Brazilian farmers thinking about selling their 2014-15 crop once again.

Local prices spiked on Monday when the soybean rally coincided with a 3% drop in the Brazilian real, to the lowest level since 2005, on the re-election of President Dilma Rousseff.

"That jump led to some business, but farmers were waiting for further gains before selling large lots," said Steve Cachia, analysts at the Cerealpar brokerage in Parana.

In the event, those gains haven't materialized as the real recuperated its losses, and more, on Tuesday and Wednesday. But Brazilian farmers have a lot of soy to sell and must start looking for opportunities.

As of Oct. 1, Brazilian farmers had committed just 12% of the projected 2014-15 soybean crop, well down on the average of 31% sold at the same point over the last five years, according to Safras e Mercado, a local farm consultancy. Little has been sold in the intervening 27 days.

After a series of profitable crops, farmers have little pressing need to sell and continue to use last year's prices as a reference for the level they believe they should be getting, analysts say.

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In fact, local prices currently aren't too far off last year's because of the devaluation of the Brazilian real. On Tuesday, soybeans were quoted at $20 per 60-kilogram bag ($9.09 per bushel) for February delivery in Rondonopolis, Mato Grosso, which using the current exchange rate is down about 10% on the average price of R$53 per bag ($9.85 per bushel) registered in February 2014.

The exchange rate could further help Brazilian farmers escape from projected negative margins in Mato Grosso and surrounding regions this season.

The Brazilian real has fallen 10% against the dollar in the last three months, and economists estimate the currency could fall as much as another 10% this year as investors flee emerging markets and Brazil's economic and foreign accounts performance continues to disappoint.

PLANTING MOVES FORWARD

More immediately, many farmers in the Center-West are concentrating on planting.

They are a month late, but the spring rains appear to have finally arrived in Mato Grosso, Goias and Mato Grosso do Sul over the last 10 days, allowing farmers to get the planters in the field this week.

Showers fell over many parts of the region over the weekend, reinforcing soil moisture levels raised by scattered storms the week before.

With further rains forecast through the week, farmers will be working hard to make up for planting delays, said Somar Meteorologia, a local weather service.

As of Friday, Brazilian farmers had only planted 16% of their soybean crop, well back on the 34% planted at the same stage last year, according to AgRural, a local farm consultancy.

Most analysts expect the planting figure to jump significantly this week, as planting is also progressing well in the southern state of Parana and is accelerating in the southernmost state of Rio Grande do Sul.

Slightly longer term, the return of the rains and planting progress may embolden farmers to sell a bit more soy on any future price spikes.

(AG)

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