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South America’s Changing Face

By Jacquie Voeks, guest columnist

There are some things going on in South America right now
that can affect the current situation for soybean prices, and also paints for
us a longer-term picture of South America as a world supplier of beans. Brazil
is the largest producer of soybeans in the world, and so what happens there,
either weather or political, is of interest to U.S. agriculture.

According to a respected agronomist I follow, Dr. Michael
Cordonnier, the way Brazil is responding to its infrastructure problems may
have implications we’ll need to keep an eye on. Here’s the scoop:

Brazil is in the process of changing all their major highways
into toll roads. They are about one third finished right now, and by the end of
next year 100 percent of their roads are expected to be converted to toll. What
this means is, depending on how far a Brazilian crop farm is from the nearest
port, costs for transporting that crop increase significantly. If you are in Mato
Grosso du Sul, and you are hauling beans or corn to either the Port of
Paranagua or the Port of Santos, the two major ports in that region, it adds
approximately 44 cents per bushel to go to Paranagua and 50 cents a bushel to go
to Port of Santos. The state of Mato Grosso, Brazil’s  largest soybean producing state, is 2.3 times
farther away than Mato Grosso du Sul. This is a straight out, added expense.

What this could do down the road is change the export
picture. It will increase their prices. It could even encourage increased
livestock and corn ethanol production in Brazil to increase internal usage of
beans and corn.

Take this infrastructure situation and couple it with the
fact that their currency has been devaluing – this is true for both Argentina
and Brazil – while the U.S. Dollar is getting stronger, you add another twist
to the picture. All of their products are priced off of U.S. Dollars, but paid
for in their local currency. So the weaker their currency gets, the more they
are actually getting for their products! This dynamic could encourage expansion
of agricultural production. And yet, many Brazilians and Argentinians are
unwilling to let go of their products because they would be paid in the local
currency, in which they have very little confidence. They would be letting go
of a physical product that has value in U.S. Dollars.

So we have this strange set of dynamics going on in one of
the largest crop producing areas of the world, and these are things most U.S.
producers do not think about. We don’t see this happening as we go about our
daily work. Public policy in this part of the world has almost as much impact
on prices as does weather. And, like weather, politics and local economies are
unpredictable.

This is why U.S. producers need to be prepared for multiple
price scenarios. We may believe that prices are going to go a certain way based
on fundamentals or weather reports. There could be other things brewing behind
the scenes that we are unaware of. And even if we do learn about them, it is
impossible to predict what politicians will do with their pens. As long as
seasons continue to turn and politicians cycle in and out of power, markets
will be unpredictable. The wise producer will be strategically ready to act
when the next price move happens, whether that is up or down.

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If you
have questions, you can reach Jacquie at
jvoeks@stewart-peterson.com, or post a marketing question on the Women in Ag forum.

 

The data contained herein is
believed to be drawn from reliable sources but cannot be guaranteed. Neither
the information presented, nor any opinions expressed constitute a solicitation
of the purchase or sale of any commodity. Those individuals acting on this
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Inc., is strictly prohibited. Copyright 2014 Stewart-Peterson Inc. All rights
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