After weathering a drought, Brazil’s farmers could be holding onto their corn a little longer to hedge against the country’s softening currency and political uncertainty, according to analysts.
In May, the value of the Brazilian real declined by 4.9%, the largest drop since September, according to Bloomberg. The real’s decline came after the resignation of a second cabinet minister in two weeks under interim President Michel Temer, raising questions about the direction of South America’s largest economy.
“If the real is declining, it makes grain higher. It adds up to bigger profits for Brazilian farmers,” observed Don Roose, of U.S. Commodities. Of course, all the uncertainty may also cause those growers to hold onto their grain for now, until either cash flow concerns or irresistibly high prices push them to sell.
That could also be good news for growers in the U.S., which now offers corn that is extremely competitively priced on the world market, according to Roose.
But prices remain volatile, given the unpredictability of the U.S. growing season just ahead and fears about a hot, dry summer. “It’s all about the weather,” said Roose.
The corn harvest is 50% completed in Mato Grosso, and analysts estimate that the Brazil corn loss from drought could be between five million metric tons to nine million metric tons, Roose added.
Brazilian Economic Slide Ripples Into U.S. Grain Market