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South America's Risks Include Currency Rates

South American Crop Watch

You bet on the weather and on prices, but what about betting on the value of the U.S. dollar?

Published on: July 18, 2013

You're already gambling on the weather. Betting and hedging on prices. But how would you like to have to add bets on the future value of the U.S. dollar to the mix? Brazilian soybean producers do it every year, and the height of forward selling some of the coming crop usually takes place about now, when it's time to come up with money to buy fertilizer and chemicals.

With a no-soy period stretching until mid-September across most of the country (a measure to deny hosts to Asian Rust), farmers in Brazil cannot do much about soybeans during this time if not for selling part of the upcoming crop.

And they do that based, in part, on whether they think the U.S. dollar will go up or down between roughly now—when they buy most of their inputs- and, say, February/March, when they will harvest most of their 2013-14 crop.

You bet on the weather and on prices, but what about betting on the value of the U.S. dollar?
You bet on the weather and on prices, but what about betting on the value of the U.S. dollar?

If those producers feel the dollar will just keep going up, they are unlikely to unload too much of their next-season crop earlier than they have to. Soybeans, whose value is set in Chicago, are like dollars: No matter what other factors contribute to the final price, the value of the greenback will be key.

So right now, some 27% of the projected 25.3 million-tonne 2013-14 Mato Grosso soybean crop has reportedly been sold, down from 93% of the upcoming state soybean crop by July of last year, according to the Mato Grosso Agricultural Economics. That is, producers there are waiting for bigger local-currency returns for each bushel sold, using the money they get from these meager early sales just to cover their 2013-14 cropping costs.

The result? At least in Brazil's top soybean state of Mato Grosso, producers are convinced the U.S. dollar is going in one direction in the coming year: up!