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July 11, 2019

Stable Near-Term Domestic Soy Prices expected in Brazil

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

As Brazilian farmers plan for their 2019/20 crops, they continue to market their old crop and new crop soybeans. According to T&F Consultoria Agroeconomica, farmers in Mato Grosso have sold 84% of their 2018/19 soybean production with the remaining 16% to be sold over the next 6-7 months. For the 2019/20 soybean crop, farmers in the state have sold 23% of their production compared to 21% last year at this time.

Brazil's soybean and soybean meal exports are starting to decline as corn exports start to ramp up. The exports of both soybeans and soybean meal are expected to decline in 2019 due to reduced demand from China, which continues to struggle to control African swine fever.

Another factor impacting soybean exports is the strengthening Brazilian currency. It is currently trading at 3.75 to the dollar compared to a few months ago when it traded 4.10 to the dollar. The strengthening currency is in response to the Brazilian Congress getting closer to passing needed pension reforms, which the market views as essential for controlling the deficit.

A stronger currency makes exports more expensive, so if this trend continues, carryover stocks of soybeans and soybean meal in Brazil could increase resulting in downward pressure on domestic prices. Therefore, there is limited possibilities of a significant increase in domestic soybean prices, at least in the near term.

The big unknown at this point is the 2019 soybean production in the U.S. If the U.S. soybean production ends up disappointing, prices could improve by the time Brazilian farmers are ready to sell the majority of the soybean production early in 2020.

The current volatility in the currency exchange rate is another example of why Brazilian farmers pay as much attention to the currency as they do the prices on the Chicago Board of Trade. Soybeans are priced in dollars, but paid in the local currency, so any change in the exchange rate makes a big difference to their bottom line.

While the stronger Brazilian currency may be bad news for domestic soybean prices, it is good news for holding down the cost of imported inputs such as fertilizers and agricultural chemicals. Approximately 70% of Brazil's fertilizer needs are imported, so a stronger currency tends to hold down the price of imported fertilizers. The correct timing of soybean sales or fertilizer purchases is critical for the success of Brazilian farmers.