Brazil’s Real Falls to Record Low, Lifting Soybean Sowing Hopes

The fall of Brazil’s real to a record low of R$4 to the dollar has lifted the country’s soybean sowing prospects to a record high despite dry conditions.

The country’s currency weakened to a record R$4.0607 to the dollar, passing its previous record low hit in October 2002 amid allegations of political corruption and concerns over the country’s economy, which economists are expecting to contract by 2.7%.

Conditions are causing investors to maneuver to reduce their exposure to the country, as some analysts with Societe Generale expect that the currency has the potential to fall further to a possible R$4.40 to the dollar.

But, since Brazilian soybeans are denominated in dollars, the crashing of the local currency has been a “boon” to supporting the local value of the crop, according to analyst, Michael Cordonnier.

As of September 21, soybeans at the port of Paranagua were priced at $81.43 – up 33% so far this year, while in Chicago, the dollar denominated price has fallen by 14.2% over the same time period.

Last month, using a rate of R$3.513 to the dollar, Cepea forecast soybean farmers’ returns at 17% on sales of the crop early next year. This profit is leading many to predict that the sowing area in the country will increase far beyond the official estimate by Imea of a 2% increase in the key growing state of Mato Grosso, despite difficulty in accessing government credit.

Dr. Michael Cordonnier is forecasting an increase in soybean acreage of 3.3% adding, “Right now, I think I may be on the low side.”

Although economic parameters point to supporting increased soybean sowing, dry weather may hamper this expansion. A lack of rain has slowed early sowing including in the key state of Mato Grosso - a state responsible for 25% of Brazil’s soybeans acreage, and where less than 1% of soybean planting has been completed. However, it is still only a week into the planting season, and too early for concern.

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