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July 10, 2017

As Soy Prices Improve, Brazilian Farmers Cautiously Optimistic

As farmers in Brazil prepare for their 2017/18 soybean crop, they are paying close attention to the improving soybean prices on the Chicago Board of Trade. Up until a few weeks ago, soybean prices did not look good at all for the 2017/18 growing season, but Brazilian farmers are now cautiously optimistic that they may actually be able to turn a profit on their 2017/18 crop. The potential for improved prices is very good news for Brazilian farmers who were worried that soybean prices might not cover their cost of production in 2017/18.

Before the recent price improvements, the Mato Grosso Institute of Agricultural Economics (Imea), estimated that farmers in the state of Mato Grosso would need to harvest 58 sacks of soybeans per hectare (50.4 bu/ac) in order to cover their costs for the 2017/18 growing season.

Imea estimates that the cost of production in Mato Grosso for the 2017/18 growing season will be R$ 3,450 per hectare (approximately $430 per acre) compared to R$ 3,683 per hectare in 2016/17 (approximately $460 per acre). The lower cost of production in 2017/18 is due to the currency exchange rate. Since most of the fertilizers and agricultural chemicals used in Brazil are imported, the exchange rate between the Brazilian real and the U.S. dollar is a major driving factor in the cost of production. A stronger Brazilian currency would generally result in lower prices for imports and the Brazilian currency was stronger earlier this year.

The vice president of Aprosoja estimated that by the end of June, farmers in Mato Grosso had purchased 60% of their needed seed, fertilizers, and chemicals for the next crop. Some of these purchases were completed as much as seven months ago when the Brazilian currency was significantly stronger than it is now, and thus imported items were cheaper.

The average price of soybeans in the state of Mato Grosso during the month of June was R$ 53.66 per sack (approximately $7.50 per bushel) compared to June of 2016 when soybean prices in the state averaged R$ 82.30 per sack (approximately $11.50 per bushel). At the end of June, farmers could forward contract their soybeans for delivery in March of 2018 for R$ 60.00 per sack (approximately $8.39 per bushel). This represented a decrease of 14% compared to March of 2017.

Before the recent soybean price improvement, the vice president of the Soybean and Corn Producers Association of Mato Grosso (Aprosoja) indicated that farmers in the state might have to leave marginal areas with lower yield potential unplanted because soybean production would not be profitable. He also indicated that some farmers may have to reduce their fertilizer applications in order to turn a profit in 2017/18. Those actions are not completely off the table at this point, but they could be if soybean prices continue to strengthen.

To a large degree, Brazilian farmer's attitude toward their 2017/18 soybean crop will depend on what happens in the United States over the next 45 days. If the 2017 U.S. soybean crop runs into significant problems, Brazilian farmers will be more aggressive with their 2017/18 soybean crop. On the other hand, if the weather in the U.S. improves and there are no concerns about the U.S. soybean crop, prices might decline and farmers in Brazil might pull back on their plans for the 2017/18 crop.

The first soybeans in Brazil are always planted in the state of Mato Grosso and farmers are allowed to start planting in the state starting on September 15th, which is the end of the annual soybean-free period. New regulations in the state stipulate that soybean planting must be completed by December 31st.