Brazil's Soybeans Benefit from Devaluation

January 15, 2002

With Brazil's devaluation of the Real coinciding with record 2000-01 soybean production, the country's soybean sector is expected to benefit most from the devaluation. USDA says Brazilian farmers cultivate soybeans primarily for the export market, while corn and cotton crops are primarily consumed in the domestic market.

During the main 2000/01 March-October marketing period for these commodities, the Real depreciated 20-30% against the dollar, significantly increasing cash returns for exported products like soybeans while providing no advantage to commodities sold into the domestic market.

Soybean producers reaped disproportionately favorable profits as the dollar strengthened, selling a bumper crop into the export market at a time of strong international demand, USDA says. At the same time, producers of corn and cotton experienced declining prices for their crops in the local market as record production exceeded domestic demand.

"Ultimately, this experience would skew producer preferences in the new year, and set the stage for a significant shift in acreage away from less lucrative agricultural commodities," USDA maintains. As farmers made their planting decisions for the 2001/02 season, the differential between Real-denominated returns for corn, cotton, and soybeans provided a strong incentive to farmers to increase soybean acreage.

Planting operations for the 2001/02 soybean growing season got off to a strong start in October and came to a timely close in late December, with the Brazilian government reporting that 99% of intended acreage had been sown by Christmas day.

Recent planting surveys by the Brazilian government and the oilseed industry confirmed that farmers heeded strong market signals favoring exported soybeans and planted a record acreage. Total national soybean area is estimated by Brazilian sources to have surged 10-12% this year, while corn and cotton area is estimated to have declined by roughly 11% and 14% respectively.

USDA currently forecasts 2001/02 soybean area at a record 15.65 million hectares, up 0.15 million hectares from last month and up 1.68 million hectares or 12% from last year. Brazil's 2001/02 soybean production is currently estimated at a record 42.5 million tons, up 1 million tons from last month and up 3.7 million tons or 10% from last year's bumper harvest.

Brazil's soybean growing region has recorded substantial rainfall accumulations since planting began in early October. Showers have been generally widespread, although volumes have varied considerably. Overall, the primary southern growing states have received at least 8-12 inches of rain in the October-December period, while the center-west, east, and northeastern states have received from 12-16-plus inches. The weather pattern to date has been nearly ideal, supporting rapid early growth and development of the crop. Total rainfall for the Oct-Dec period has been below normal in key producing areas, but moisture accumulations have kept pace with or exceeded crop requirements to date.