Headwinds for Brazilian Producers Could Benefit American Farmers

March 24, 2016 09:15 AM
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Why should American farmers care about what happens in Brazil?

Because a stronger Brazilian currency (the real) and weather concerns amid political turmoil could be good news for U.S. farmers, according to analysts.

“The number one question you have to ask is, ‘Where does the real go from here?’” said Don Roose, of U.S. Commodities.

“Soybeans are overpriced in Brazil and underpriced in the world. They buy in reals, but sell in dollars. Their farmers are making money. Our farmers are losing money,” Roose said.

“Their acres are on the increase; our acres are contracting. There and in most of South America, supplies are on the rise. In the world, demand is stale,” he added.

Although Brazil’s real dipped Tuesday, losing 0.4 percent to 3.6336 per dollar, (Bloomberg reported) it isn’t enough to be a game changer, according to analysts.

“People in Brazil thought it was overvalued,” Roose noted.

But there are other headwinds facing growers in Brazil, according to Michael Cordonnier of Soybeans and Corn Advisor, in Hinsdale, Ill.

“There are storm clouds on the horizon,” including lower consumer demand and La Nina, Cordonnier observed.  “There is a very important chance of La Nina,” which would lower crop yields in Brazil and Argentina, he said.

Even as Brazil goes through a political crisis while its president, Dilma Rouseff faces impeachment, analysts are keeping a watchful eye on the real.

“The currency is the big story,” said Cordonnier.  The last couple of weeks it was a stronger currency, which is good for the country, but not good for farmers. Brazilian farmers have benefited from a weakening currency for the last two years. It’s one reason for agriculture’s big stake as a performer in Brazil’s recovery.”

What does all of this add to for U.S. farmers?

“Currency and weather are the great equalizers,” Roose said.

Most U.S. farmers, he noted, are at the start of the growing season.  Roose sees higher prices now (corn at $3.88), going to $3, and soybeans now at $9.17, going to $7.50.

“If prices go down, it’s easier to export, but if we go down (in price), the rest of the world goes down,” Roose cautioned. “There are two moving parts; demand is pretty stale, and the U.S. is overvalued on all three crops.”

On the bright side, the cost of inputs is going down; energy, fertilizer, and machinery costs are down.  Rents and land values will go down, and it gives new players a chance to get into the game, Roose said.

His advice for farmers is to focus on the currency movements and watch to see if U.S. acres go out of production.

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