June 18, 2007

Strong Argentine currency hurts Brazilian soy

In January 2001, the exchange rate in Brazil was about the same as today, about R$1.95 to the dollar. Soybeans delivered to the port in May 2007 were 58 percent higher than in January 2001 largely the result of higher prices on the Chicago Board of Trade (CBOT). What seems to be good news for Brazilian producers is even better for the Argentines. In the same period, the price of soybeans in Argentine currency (peso) increased 385 percent, according to a study by the Centre for Advanced Studies in Applied Economics (Cepea/USP).

Lucilio Alves, researcher at Cepea said the Brazilian farmer even with a tight profit margin will have to invest in technology and sales strategies to face the competition with its Southern neighbour.

The exchange rate differences between the two countries are significant. In mid May the dollar in Brazil was traded at R$1.92 and in Argentina at 3.09 pesos. In May the 2.2 percent increase in soy prices at the CBOT were eliminated in Brazil since the dollar fell 2.23 percent and fell to R$1.93, according to Alves.

Although international prices are sustaining the loss in dollar terms, the soybean sector is concerned that the prices will fall back to their historic average, said the technical director of the Organization of Cooperatives of the State of Parana (Ocepar), Flavio Turra. A study made by that organization indicates that if prices return to their historic average, US$228/tonne, the exchange rate would have to be up to R$2.20 to the dollar to remunerate the farmers of Parana. In the case of corn, the situation is even more disadvantageous as if it returns to the historic average of US$115/tonne, the dollar would have to be worth R$2.80. Turra said the situation states farmers in Parana is better off compared to others because they are closer to the port than other Brazilian soybean farmers.