November 15, 2016

Brazil Currency, U.S. Election, Nov. Crop Report, Brazil Politics

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

Last week was a crazy week with the surprise election results in the United States, turbulent currency markets worldwide, a November crop report with surprising large U.S. corn yields, and new allegations of political corruption in Brazil.

A lot will be written about what happened last week, but I am going to focus on how it might impact Brazilian agriculture. The currency exchange rate in Brazil is often times more important to Brazilian farmers than the actual international price of commodities. Well, last week as a crazy week in the currency markets and the currency exchange rate once again took center stage.

The Brazilian currency fell sharply against the U.S. dollar last week in spite of repeated interventions by the Brazilian Central Bank. I am not an economist or financial market analysts, so I am not going to dwell on the reasons for the turbulence in the currency markets other than to state the obvious. The reasons for the change in the Brazilian currency include: the surprise election results in the U.S., the potential for a more protectionist trade policy in the U.S., a stronger dollar, and renewed political uncertainty in Brazil after the new allegations of corruption against the current president.

The Brazilian currency declined three straight days late last week and reached a point of 3.5 to the dollar on Friday before recovering and finishing the week at 3.4 to the dollar. As of this writing (Monday afternoon), the Brazilian currency is trading at 3.44 to the dollar. Speculation in Brazil is that it will weaken to at least 3.5 to the dollar.

For whatever the various reasons, the Brazilian currency today is weaker than it was a week ago and that could have significant implications for Brazilian agriculture. Whenever the Brazilian currency weakens, it results in rising domestic commodity prices in Brazil.

The weaker currency is probably coming too late to impact the 2016/17 Brazilian soybean crop, but it could have a significant impact on the 2016/17 safrinha corn crop that won't be planted until next January or February. The farmers who plant safrinha corn in Mato Grosso and Parana planted their soybeans at a record fast pace, so they already know that if the weather cooperates next January and February, they will also be able to plant their safrinha corn early as well. Generally, the earlier the safrinha corn is planted, the higher the potential yield.

Therefore, there are numerous potentially positive developments for Brazilian farmers including: early planting of the soybeans, potential good soybean yields due to favorable weather, early planting of the safrinha corn, potential good corn yields due to early planting, and potential good corn prices due to a weaker currency. As a result of these positive developments, I think there is the potential for a big increase in the 2016/17 Brazilian safrinha corn crop.