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Brazilian Producers Cheer for a Strong Dollar

South American Crop Watch

The difference the exchange rate makes for South American farmers

Published on: September 22, 2011

When I spent a semester of college in Rio de Janeiro, the dollar cost of renting my room in an apartment with other students went from $50 to less than $15. Back in the mid-1980s, the question wasn't whether the dollar had gone up on any given day, but by how much it had climbed overnight.

The more the dollar climbed against the local currency, the worse things got for Brazilian buying power.

Those were indeed good days to have dollars in Brazil, as soybean producers pretty much had. After all, with prices set in Chicago, beans are dollars. As a result, even years after the nightmare of hyperinflation ended, many producers here will tell you how many bushels they paid for that new combine. Or tractor. Or even for their car.

And even with hyperinflation under control, the dollar was still a currency that basically appreciated. As things started to go south in U.S. and Europe, in terms of economics, more and more investor dollars flooded into Brazil—nearly $26 billion in 2009, says Unctad, a United Nations agency, and more than $30 billion in 2010. 

All those dollars sloshing around the economy here had their effect. The U.S. dollar started out a few years ago by wobbling (with the highs seeming to come at planting time, and the lows at harvest, which did much to put local soybean producers in high dudgeon.) And when the dollar stopped bouncing around, it settle on a fairly straightforward downward path—going as low at 1.5:1 against the dollar (That's half as many Brazilian reals as a dollar would buy nine years ago.)

But things appear to have turned around a bit back, with the U.S. currency picking up some 14 percent against the real since the end of July, and more than seven percent for 2011 so far, according to Brazilian editor Marianne Peres, of the Diário de Cuiabá newspaper. The U.S. dollar had climbed beyond that, even, as I wrote this blog, hitting 1.86:1 today (Sept. 21) for this first time since October of 2008.

With some 94 percent of the 2010-11 crop already sold, there's little Brazilian producers can do to take advantage of the dollar's new-found strength. On the other hand, that's 94 percent of the crop in one heck of a good year for Brazilian ag, in which farmers here, with money burning a hole in their pockets for the first time in a long while, virtually ran to their inputs suppliers to buy their fertilizer, seed and chemicals already—while the dollar was lower.

 As a result, the Brazilians are keeping the champagne bottles corked until harvest time—at least for the earliest beans—in mid-February.

Unlike the mid-1980s, the Brazilians—at least those about to put a bean crop in the field—are rooting for the dollar to go up, or at least stay where it is. It was never like this back in college.