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Stronger Dollar, Less U.S. Soybean Exports?

When the U.S. Federal Reserve announced it would ease its stimulus program and by sometime raise interest rates, that decision brought several changes to the general outlook of the world's economy. The U.S. dollar, according to some analysts, tends to be stronger around the world. In the case of South America, the top America competitor at the international grain supply, currencies may devalue even more because of local issues. 

Therefore, according to Bill Tierney, chief economist at the AgResource Company in Chicago, a weakening currency in a country like Brazil or Argentina tends to stimulate agricultural production (and exports) relative to the disincentive for U.S. production and exports. "Depending on when the South American harvest begins, it is possible that some of the contracts for U.S. soybeans (and soymeal) could get switched over to South American origins,” says Tierney. 

He adds, “On the other hand, the U.S. has more availability, and much of the soybeans from the country were already contracted by Chinese importers.”

In the case of Brazil, the factors causing the devaluation of the Brazilian Real are the lack of fiscal discipline of the incumbent president, some interventionist policies, and the uncertainty and speculations generated by the current election. Just in September, the dollar jumped 9.9% compared to the Brazilian Real. As of today, US$ 1 buys R$ 2.39. With the fears that the incumbent president Dilma Roussef would win the election, that value reached R$ 2.50 in early October. 

According to Carlos Cogo, a market analyst from Porto Alegre, Rio Grande do Sul, this devaluation will benefit grain farmers in Brazil, today expecting to have a record soybean crop of 92.4 million tons because most farmers already purchased their inputs and would await the peak of the U.S. dollar to sell. Of the projected output volume, about 10% is already sold in the country. Compared with last year, the amount sold was 28%, according to Céleres consultancy.

"Farmers bought inputs with an average dollar valuing R$ 2.20, and they are likely to sell with a dollar between R$ 2.45 and R$ 2.50 at least. The negotiations involving the Brazilian 2014/2015 crop season remain slow,” analyzes Cogo.

In Argentina, despite the currency situation being more serious, local farmers may still retain corn and soybeans for a while. Currently, the country stocks about 20.6 million tons of soybeans and 14.5 million tons of corn. From January to August, the official dollar value in the country, which is tightly controlled, the Argentinean peso fell 21.7% against the U.S. dollar, and it is now worth AR$ 8.40. But the parallel dollar, purchased in the black market, is purchased with AR$ 14.83. Earlier this year, it valued less than AR$ 12. Unlike other countries, however, the currency value in Argentina is more impacted by domestic issues, such as the default and currency trade repression, than by the policies of the U.S. Federal Reserve.

"The (sales) decisions are done with the dollar that is received and the value that we have. In Argentina, there is a lack of dollars and there is less impact from what's going in the world. The farmers’ decisions have more to do with the dollar than with the price of soybeans,” affirms Lorena D'Angelo, an independent analyst from Rosario, northeast of Argentina, predicting that farmers in Argentina will not yet rush to sell grains.

For Paraguay, the world's fourth-largest exporter of soybeans, there aren't significant stocks of the oilseed to sell, but there is an expectation of a record crop of 10 million tons by the country's ministry of agriculture.

 

"Here, the dollar value has a smaller impact (than in other South American countries). The totality of the agricultural market is already in dollar. It is not like Brazil that there are national industries,” explains Liliana Báez, director from consultancy Agridatos from Ciudad del Este. 

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