In a Global Market Meltdown, Brazil Soy Fields Become a Haven
Brazil’s Soy Fields Are a Safe Haven From Global Market Meltdown
(Bloomberg) -- If you’re looking for a place to escape the turmoil rocking global markets, it might be time to take cover in Brazilian soybean fields.
Local prices in the world’s biggest soy shipper have climbed in recent weeks even as the coronavirus aftershocks take down most commodity and crop markets. That’s largely thanks to a plunge for the Brazilian currency, which makes exports from the country more attractive.
Domestic bean prices have jumped to the highest since October 2018, recovering to levels seen during the China-U.S. trade war that boosted demand for supplies from Brazil. The rally comes despite the fact that the harvest is well underway in South America, typically a time when the market falls amid the flood of supplies. By contrast, May soy futures traded in Chicago, the global benchmark, are down about 10% this year.
Brazil’s “farmers are selling soybeans close to record levels,” said Leon Davalo of grain-brokerage firm Granos in Campo Grande municipality, Mato Grosso do Sul state. “Producers will have really good profitability this season.”
The Brazilian real has lost more than 15% against the U.S. dollar in 2020, making it the worst-performing currency in the world and leaving it trading at record-low levels. That’s sparked some unexpected pockets of stability, away from the malaise sweeping global equities and commodities as the health crisis slows economies.
For example, the currency move prompted Brazil’s sugar makers to hedge their shipments at much greater levels than normal earlier this year, providing some insulation now that prices for the sweetener are tumbling. Meat exports from the nation are also likely to benefit from the real’s slump.
For soybeans, Brazilian farmers are now ramping up sales to take advantage of the gain in local prices.
Sales for the 2019-2020 season jumped to 61% complete as of March 6, up from about 50% a month earlier amid the currency crash, according to Luiz Fernando Roque, an analyst at consulting firm Safras & Mercado. Forward sales for the next crop have also accelerated, with offers coming in close to spot prices, an unusual move.
Still, the selling could start to slow now as the near-record prices means buyers could start backing away, he said. Exporters are now likely well supplied in terms of volume and are likely in a comfortable enough position to wait for local prices.
Meanwhile in sugar, cane mills as of March 5 hedged 78% of estimated exports for the 2020-2021 season, a jump from the average of 50% at this time in the last five seasons, according to the Sao Paulo-based Archer Consulting.
That means a major part of the crop won’t be hit by a drop in the market. Prices for the sweetener could keep falling as the collapse in oil costs discourages ethanol demand and encourages cane processors to turn more of the crop into sugar rather than biofuel.
--With assistance from Isis Almeida, Fabiana Batista and Marvin G. Perez.
To contact the reporter on this story: Tatiana Freitas in São Paulo at tfreitas4@bloomberg.net
To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Millie Munshi, Reg Gale
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