The News & What it Means – Lower Brazilian Real Another Challenge for U.S. Soy Exports

By John DePutter & Dave Milne – November 26, 2019
The News:

“Brazil’s government devalued the country’s currency, the Real, sparking farmers to sell old and new crop soybeans”

Successful Farming, November 22, 2019
What it means:

The potential for more South American production, further competition in international markets, and the possibility of additional price pressure in the weeks ahead.

Just as a lower Canadian dollar versus the American greenback makes Canadian soybeans or canola appear more attractively priced to foreign buyers, a lower Real does the same for Brazilian soybeans.

And as noted by the above article, the cheaper currency also encourages Brazilian selling, given that farmers stand to pocket more money after the returns for their soybeans – which are priced in U.S. dollars in the international market – are converted back into Real.

At the end of the day, the weaker Real makes an already challenging soybean export environment even more difficult. That is particularly true when the U.S. dollar is actually headed in the other direction against a variety of currencies, making U.S. soybeans relatively more expensive and less attractive for importing countries.

Brazil production capacity expanding

Regardless of relative currency weakness or strength, U.S. soybeans have already faced increasingly stiff competition from Brazil since the late 1990s. Each year, soybean supplies in Brazil are establishing new heights with a steady expansion of area and improving yields. For the past seven years, Brazil has been the world’s top soybean-exporting country. The higher returns achieved through a weaker Real should only serve to further encourage the production trend. Recent expansion of port capacity in Brazil is also lowering the freight cost and delivery time of export shipments.

Trade war woes

Meanwhile, the ongoing U.S.-China trade war has meant U.S. sales to China – the world’s top import market – have been crimped as China has turned almost exclusively to Brazil as a supplier. In effect, the trade war has forced U.S. soybean exporters to look elsewhere for business.

But with the strength in the greenback, finding that extra business is being made tougher. For some importing countries (other than China), U.S. soybean shipments already have many natural advantages in terms of shipping costs, delivery times, and credit availability. But even then, it will not be easy to compensate for the dominant position that China holds in the global market.

In its latest baseline projections for the next decade, the USDA forecast that even with prospective gains in foreign demand, U.S. soybean stocks are expected to decline only marginally in 2019-20 and could take up to four years to return to a “long-term equilibrium level.”

With China taking a step back and the stronger U.S. dollar making sales into alternative markets more difficult, the lower Real is another bearish factor for soybeans.

Currency fluctuations add another layer of uncertainty to crop marketing.

Important: The Brazilian factor is only ONE of many fundamental forces affecting soybean prices on your farm. The DePutter service synthesizes various global and local factors – and monitors technical signals. Let us play a role in your soybean marketing decisions with Ag-Alert.

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