South America Calling

A mixture of rising international prices, a weak real, strong export demand and uncertain domestic politics has driven Brazilian soybean prices to four-year highs.

At Paranagua port, soybeans were quoted at R$94 per 60-kilogram bag ($11.90 per bushel) on Monday, up 15% on a month before and up 38% on the same time last year, according to Safras e Mercado, a local farm consultancy.

These are levels not seen since September 2012, when Chicago futures were trading at $17.70 per bushel. Pushing prices higher is the recent surge in international soybean prices that took the bushel above $10.80 last week, combined with a continued a weakness of the local currency. Brazilian real has been consistently trading above R$3.50 to the dollar over the last month. On Tuesday, the currency was trading at R$3.59 to the dollar and has lost 12% against the greenback in the last year.

However, surging international demand has really put fire under domestic prices.

Heavy rain-related losses in Argentina led to the transfer of a lot of soy shipments to Brazil, contributing to record shipments in April and what will likely be record shipments in May as well. In the first four months of 2016, Brazil shipped 20.9 million metric tons of soybeans, over 60% higher than the same period one year before.

Meanwhile, farmers have been cautious in selling large amounts despite the rising prices amid the political and economic uncertainty surrounding the impeachment of President Dilma Rousseff, far-reaching corruption investigations that are rocking the political establishment and the deepest recession in recent history.

As a result, premiums for May shipments from Paranagua port have reached $0.57 per bushel over Chicago futures. That is unheard of in May, just a month after the end of the Brazilian harvest and a prime-exporting month.

It isn't just at port that prices have leapt. In Sorriso, center-north Mato Grosso, soybeans were quoted Monday at R$86.50 per 60-kg bag, up 47% on the same time last year.

The soy price jump has had a significant impact on the poultry and pork industry, which is already suffering amid negative margins because of a similar jump in the price of corn.

(CZ)

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