South America Calling

Brazil's Own Soy Anxieties

Lin Tan
By  Lin Tan , DTN China Correspondent
Planting is underway in Brazil and, while its farmers are still getting good prices on old-crop beans, they aren't enthused about new-crop prices. (DTN file photo)

SAO PAULO, Brazil (DTN) -- Though Chinese buyers are turning to buy more Brazilian beans as the Chinese government is retaliating with a 25% tariff on U.S. soybeans, Brazilian farmers are not optimistic about the new crop as planting season begins.

Still, parts of Mato Grosso and Parana have gotten enough rain and soil moisture, as well as warmer temperatures, for at least some farmers to start running their planters.

"It is very hot here on my farm. We did not have rain yet so [have] not start[ed] planting. But, some farmers in the state are receiving very good rain and planting in a full speed," said Ricardo Arioli Silva, "The state of Mato Grosso has about 2% planted already."

By Friday, planting in Mato Grosso had jumped to an estimated 4.8% planted, compared to 1% last year, according to the consulting firm AgRural.

Parana State, second in production behind Mato Grosso, is way ahead this year. As of Sept. 27, roughly 18% of the crop was planted in Parana, compared to 9% last year. Nationally, AgRural reported Friday that just about 4.6% of acreage had been planted as of Sept. 27, which is more than double the five-year average of just 2.1%, DowJones reported.

AgRural increased its forecast for Brazilian soybean planted area to 35.8 million hectares (88.43 million acres), up from 35.1 million hectares (86.7 million acres) for last year's crop.

Silva farms 2,000 hectares of land in Campo Novo do Parecis, northwest of Cuiaba, the capital city of Mato Grosso State. Mato Grosso and Parana states are the first and second largest soybean-producing states in Brazil.

The soybean market for beans set to go into the ground this season is not that good in the production area and farmers say selling is not easy, as Silva noted. "Cash soybean (old crop) market is about 74 reals per bag (US$ 8.19 per bushel), but for the new crop, the buyers only offer 65 reals per bag (US$ 7.19 per bushel), way below farmers' expectation. Most of the farmers had sold out their old crop beans. But, the price for the new crop beans has no incentive for farmers to sell," Silva said.

This negativity comes even as Brazil's old-crop beans are still selling at $2.50 a bushel above U.S. beans.

So far, farmers had sold only around 15% of the new-crop beans, compared to 40% at the same time in a normal year. Soybeans already sold are mostly to barter for inputs such as seed and fertilizers.

"Trading companies do not want to offer a higher price because there are many uncertainties there for the new crop," said Thiago Piccinin, CEO of Lotus Grains and Oilseed, a trading company in Sao Paulo.

Paper market basis in Paranagua is $2.50 in U.S. dollars per bushel for October, but only $1.05 per bushel for March next year. Old-crop beans are $1.45 higher than new-crop beans, Piccinin explained.

TRUCK FREIGHT

The changing of inland truck freight, awaiting a court ruling, is one of the risks for farmers and trading companies. "The new policy of minimum truck freight is 30-40% higher if it is approved by the superior court," said Piccinin, "If trading companies buy now and the freight increases later on, trading companies have to pay the extra freight cost; if they buy after the freight increase, farmers will have to pay it."

However, if the court does not approve the minimum freight policy, truck drivers may go on strike again. Trading companies may find no trucks to ship the beans. "Many trading companies [are] trying to build their own truck fleet to avoid the risk," Piccinin said.

EXCHANGE RATE, PRESIDENTIAL ELECTION

Another risk is exchange rate, as Brazil's real is unstable recently. Current exchange rate is one U.S. dollar to 4.10 reals, depreciated from one dollar to 3.10 same time last year. If the currency keep depreciating, farmers will be happy about it. But, if Brazil currency appreciates next year, farmer revenue will decrease.

"The exchange rate is more related to the president election. If we can have a strong market-oriented president, which is highly possible, Brazil's currency will get stronger next year; that will not be favorable for farmers." Piccinin said.

Brazilians will vote for their new president on October 6.

The above situation puts farmers in an embarrassing spot -- they cannot sell their new-crop beans, nor can they hedge the crop, because the CME price is very low. March 2019 soybeans have fallen from $10.43 a bushel last May to $8.82 as of trading early Friday.

TRADE WAR

Finally, another big risk for Brazilian farmers will be U.S.-China trade relations. Though the basis is currently strong in Brazil as Chinese buyers keep buying old-crop Brazilian beans, it could go down to negative if the two countries make an agreement any time soon.

"Any agreement between China and U.S. will mean more U.S. beans selling to China; that also means China will buy fewer Brazilian beans," Piccinin said.

Silva noted he may shift crops in 2019 similar to what is expected with U.S. farmers next spring.

"We may plant more corn next year if soybean is not profitable for us this season," Silva said.

(CC/CZ)

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