SAO PAULO (Reuters) - Brazilian farmers were forecast to expand the country’s soybean planted area for the 12th consecutive year amid strong demand from Asia and in spite of risks related to the exchange rate and higher freight costs, according to a Reuters poll of analysts on Tuesday.
Brazil is likely to expand the area to a record 36.28 million hectares (89.65 million acres) this season, which farmers will start planting around September, a 3.2 percent expansion from the previous cycle based on government data.
Over the past 12 years the soy area grew on average about 5 percent annually, with the fastest rate or growth taking place in the 2012/2013 crop year at 10.7 percent.
“Among factors driving the growth of area, there’s the effect of the trade war between the United States and China, which has supported Brazilian soybean prices in export markets,” said Victor Ikeda, a Rabobank analyst.
The trade tensions led Brazil soybean port premiums to rise as much as $2 per bushel, at the same time an appreciation of the U.S. dollar against the local currency has offset the drop in soybean prices at the Chicago Board of Trade, which fell by around 7 percent in 2018.
Yet if on the one hand the strong dollar helps farmers in export markets, it impacts the cost of farm inputs which are quoted in foreign currency.
“The devaluation of the (Brazilian) real will boost production costs by an average of 10 percent in the next season driven mainly by higher fertilizer and agrochemical costs,” said Céleres, a consultancy.
Céleres forecasts average soybean return of 1,191 reais ($304.43) per hectare in 2018/2019.
“Though farmer margins are lower than in 2017/2018, they continue to be high and will encourage area expansion,” the consultancy said.
Brazil, the world’s largest soybean exporter, is expected to collect an estimated 119.76 million tonnes of the oilseeds in the coming season, up 0.65 percent from previous cycle.
Planting will begin around September, the month prior to the Brazilian general election, which analysts expect may fuel forex volatility. That, together with higher freight costs, has hampered futures soybean sales.
“Over the past few weeks, the sale of new crop soybeans has lagged due in part to uncertainties related to freight costs in 2019,” said Steve Cachia, a consultant at CerealPar.
Freight costs rose after the government decided to set minimum truck freight prices following a truckers strike crippled Brazil’s main roads in May.
Reporting by José Roberto Gomes and Writing by Ana Mano; Editing by Marguerita Choy
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