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Fall in real boosts Brazilian soybean sowings hopes

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The fall in the Brazilian real past R$4 to the dollar, to a record low, has only enhanced prospects for the country's soybean sowings to set a record high, despite a dryness-tested start to the planting season, Michael Cordonnier said.

The real on Tuesday weakened past R$4 to $1 for the first time since October 2002 before hitting a record R$4.0607, amid continued worries over the country's economy, expected by economists to contract by 2.7%, and with senior politicians tackling corruption allegations too.

At Halo Commodity Company, Tregg Cronin said: "The Brazilian economy remains in shambles amid a corruption scandal involving the president," Dilma Rousseff.

Analysts at Societe Generale forecast that the currency could fall further, to some R$4.40 to $1, as international investors scramble to cut their exposure to the South American country.

Real help

However, for soybean farmers, the currency's fall has been a "boon", in supporting the value, in local terms, of a crop which is denominated in dollars, said influential analyst Michael Cordonnier.

Forecasts for Brazilian soybean production, 2015-16

FCStone: 110.9m tonnes

Safras e Mercado: 110.5m tonnes

Michael Cordonnier: 99.0m tonnes

AgRural: 98.9m tonnes

Celeres: 97.1m tonnes

USDA: 97.0m tonnes

In Chicago's futures market, the world benchmark, dollar-denominated prices have fallen by 14.2% over the same period.

The falling currency, while boosting costs for Brazilian farmers of imported inputs such as many fertilizers, has ensured they remain in profit, even as many growers in other parts of the world, with stronger currencies, have seen crop prices fall below the cost of production.

'Butts saved'

"Brazilian farmers' butts have been saved by the currency," Dr Cordonnier told Agrimoney.com.

"It's been manna for them."

Cepea last month, using a rate of R$3.513 to $1, forecast soybean farmers' returns at 17%, on crop sold early next year.

"Despite difficulties in the access of governmental credit, soybean planted area may increase due to its profitability compared to competitor cultures," the institute said this week.

'On the low side'

Indeed, the extent of the decline in the real has raised ideas that Brazilian soybean sowings might expand well beyond levels implied by figures from research institute Imea, which has forecast a 2% rise in the key state of Mato Grosso, and while officials in Parana have predicted a 2% increase in that state too.

Dr Cordonnier himself has forecast a 3.3% increase in plantings, to 33.0m hectares.

"Right now, I think I might be on the low side," he said, citing the weakness in the real, and noting some forecasts for an increase of 5%.

"A figure of 3.3% might be a tad low."

As an extra support to soybean sowings prospects, some southern areas, such as Rio Grande do Sul, have suffered wetness which, if it prevents corn plantings, might prompt a switch to soybeans, which can be later seeded.

Slow off the mark

Nonetheless, for Brazilian soybean plantings, the biggest weather concern currently is over dry weather in some central areas, including the key state of Mato Grosso, which has slowed early sowings.

Recent rains "have been confined largely to southern Brazil", rather than Mato Grosso, responsible for about one-quarter of Brazilian soybean area, where a dearth of rain, coupled with temperatures as high as 100 degrees Fahrenheit, has made growers reluctant to start seeding.

"Usually, Mato Grosso farmers start first. But it looks like for a third year in a row Parana farmers will start earlier," Dr Cordonnier said.

Overall, he estimated that "less than 1%" of Brazilian soybeans are in the ground, although saying this was "nothing to be concerned about yet", speaking only a week after the, regulated, sowings window opened in Mato Grosso.

Corn prospects

Still, a bigger weather worry could emerge for farmers next year, on corn, for which they are switching much acreage to the so-called safrinha crop - planted as a second crop, on fields vacated by the soybean harvest early in the calendar year, Dr Cordonnier said.

This practice should allow Brazil's farmers to keep overall corn acreage the same next year, or even show a small increase, despite swapping some areas of first-crop corn, also being planted now, to soybeans.

However, growing safrinha corn is a risk, with the crop dependent on rains lasting well into the calendar year – which they have done for the past four years, providing bumper yields, but have further back been less reliable.

'You're in trouble'

"No-one knows if the experience of the last four years, when rains have lasted to June, represents a climate shift, or is just a matter of luck," Dr Cordonnier said.

But if a La Nina emerges next year, as some forecasts are already warning of, that has a history of supressing rains in major Brazilian growing areas, that could make a losing bet of gambling on safrinha corn.

"Imagine if you plant in early March, and it stops raining a month later. You're in trouble," Dr Cordonnier said, adding that "in general, La Nina is bad for yields".

And not even a weaker real would be able to save farmers from that setback.

By Mike Verdin

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