February 14, 2020 / 8:03 AM / 3 days ago

Column: Brazilian farmers aggressively sell soy, corn amid weak currency, U.S.-China deal

FORT COLLINS, Colo. (Reuters) - Brazil might not be harvesting soybeans at a record pace, but farmers there are certainly selling their crops at a much quicker clip than usual due to the weak currency and uncertainty over how the U.S.-China trade deal will affect their business.

A worker inspects soybeans during the soy harvest near the town of Campos Lindos, Brazil February 18, 2018. Picture taken February 18, 2018.

Brazil typically ships more than half of its annual soybean exports between March and June, and some 75% of those head to China. Brazil’s January soybean shipments to China were down sharply from last year on more U.S. involvement, but American bean sales and exports to the world’s top buyer have cooled in recent weeks.

The United States may have to ship a record volume of soybeans to China this year in order to satisfy the recently signed Phase 1 trade deal. That might not be so bad for Brazil if it results in a drastic reduction in U.S. soy trade with other countries, but Brazilian farmers smell the competition, especially with the uncertainty about demand from China amid its troubles with African swine fever.

As of this week in Mato Grosso, Brazil’s top soybean producing state, farmers had sold 68% of their 2019-20 soybean crop, at least a five-year high for the date and well above last year and the five-year average, both 54%.

As of Friday, the crop was 45% harvested, above the average of 32% but behind last year’s record of 53%. Growers in Mato Grosso are thinking ahead to next year, too, having sold 13% of their 2020-21 soybeans, the crop they will be harvesting a year from now. It is unusual for next year’s sales to begin so early.

A year ago, none of the 2019-20 beans were marketed. In Parana, Brazil’s No. 2 soybean state, farmers had sold 26.5% of their current soybean crop by the end of January, similar to a year ago. Some 10% of the area had been harvested as of Monday, and that is well off the average of about 22%.

Brazilian growers have the weak real currency on their side, and that is making the sales of their crops particularly attractive as they are sold in dollars. The real hit an all-time low against the dollar on Thursday above 4.38 per dollar, some 9% lower than at the start of this year.

The difference is apparent when relating the currency weakness to Chicago soybean futures. As of midday Thursday, the contract was trading just below $9 per bushel, about 2% lower than on the same date a year ago.

But that same price in Brazilian reais is about 13% higher today than a year ago. Brazil’s own statistics agency, Conab, increased the soybean crop on Tuesday to 123.25 million tonnes from last month’s peg of 122.2 million.

The U.S. Department of Agriculture also raised its outlook to 125 million tonnes from 123 million in January. However, some analysts believe Brazil could ultimately have a larger bean offering than either of those predictions.

Conab bumped Brazil’s total 2019-20 corn output to 100.5 million tonnes from 98.7 million a month earlier, slightly edging last year’s total of 100 million. USDA’s estimate was unchanged at 101 million tonnes.

Domestic corn prices have recently hit a four-year high in Brazil on strong feed demand and use for ethanol, and that is despite the record 2018-19 harvest.

Corn sales are hot in Mato Grosso, the country’s top producer, where nearly all the corn is second crop. Brazil typically exports much of its second corn harvest, so a large portion always comes from Mato Grosso.

Farmers there have sold 64% of their 2019-20 corn, well above last year’s 47% and the average of 44%. Some 39% of Mato Grosso’s corn was planted as of last Friday, a couple points above average but down from last year’s 52%.

Parana farmers have been less aggressive, with just 7% of their second crop sold at the end of last month. Planting is also notably behind the average of about 30%, reaching 14% as of Monday. Parana grows some first-crop corn, but its second harvest is nearly four times as large.

The opinions expressed here are those of the author, a market analyst for Reuters.

Editing by Matthew Lewis

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