South America Calling

Brazilian farmers have jumped into the soybean market in recent weeks and sold an unusually large portion of the 2016-17 crop only a short time after they harvested the last crop.

According to Celeres, a local grain consultancy, farmers have committed to sell 16.4% of the projected 2016-17 crop, up significantly on the average of 5% sold at this stage over the last five years.

Last year, it took farmers till July to forward sell the same amount of crop, which goes into the ground starting in September.

Most of the soybeans are sold in Brazilian reals, via barter deals, in which the farmer books inputs in return for delivery of the resulting crop, said Celeres.

Farmers sought to take advantage of the recent surge in international prices, at the same time locking in foreign exchange risk for the next season.

Another factor prompting farmers to sell is the economic crisis. High interest rates and limited credit availability are forcing growers to seek alternative sources of operating credit, said Celeres.

The terms of exchange for future soybean delivery in return for inputs are currently attractive. In Mato Grosso, the input costs for 2016-17 soybeans is currently around 28 60-kilogram bags per hectare (25 bushels per acre) compared with 35 bags in May 2015, according to the Mato Grosso Agricultural Economy Institute (IMEA).

Of course, there are also farmers playing the market, keen to fix prices before the weight of the U.S. 2016 crop starts to bear on prices.

Meanwhile, exporters and crushers have chosen to be more aggressive in securing soybeans than usual amid expectations that supply in early 2017 will be tighter than previously thought. Carryover stocks are seen lower after losses to 2015-16 crops in Mato Grosso and the northeast and a very strong start to the 2016-17 export season following losses in Argentina.

The brisk future soy trade over the last month is a strong indicator that Brazilian soybean area will indeed continue to expand next season, although likely at lower levels than in recent years.

(CZ)

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