Brazilian Currency Weakens As Crops Are Harvested

In just a month, the value of the  Brazilian real has fallen by 8 percent against the dollar, where 1 U.S. dollar was equal to R$2.06 reals and is now valued at R$2.23 reals (Brazil Central Bank rate for June 6).  This is seen as benefiting Brazil since, over the past two years, the opposite trend had been occurring where the real had been appreciating making Brazilian exports less competitive, at the same time increasing their cost of inputs such as fertilizer and fuel, resulting in reduced crop profitability.  This current slip in the real is expected to offer some relief to Brazilian producers.  In addition, the Government of Brazil announced on May 12, an emergency aid  package to help soy farmers cope with increased transportation costs due to higher diesel prices, as well as support prices and increase credits for all crops.  The direction of Brazil’s exchange rate will be an important determinant of its export competitiveness, which will help farmers decide which crops to plant in late 2006.

The majority of the 2006/07 corn is summer corn which is typically planted late in the year (southern hemisphere summer).  The USDA preliminary production forecast for total corn production in 2006/07 is 40.5 million tons, 0.5 million lower than last year based on a lower area of 12.5 million hectares (12.8 million last year).  This lower area is forecast as a result of the larger 2005/06 summer crop currently being harvested, which has kept corn prices low.  If the real maintains this recent depreciation trend, there may be an incentive to plant more.

Brazilians are currently harvesting the 2005/06 summer corn crop in the major southern producing states (Rio Grande do Sul, Parana, Santa Catarina), and just finished planting winter corn mainly in the center-west region.  Both crops have rebounded from than last year’s drought-affected crops.  Soybean and cotton producers have just finished harvesting their 2005/06 crops.

Currency depreciations in Brazil benefit Brazil’s export sector since its export prices are lower compared to world market prices.  Brazil is a major producer of soybeans, corn, and cotton.  On average, Brazil exports 40 percent of their soybean crop, 24 percent of their cotton, and 7 percent of their corn.