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Corn+Soybean Digest

A Real Bonanza

The recent sharp fall of the Brazilian currency, the real, is giving soybean growers there an immediate, albeit short-term, cash bonanza.

On the flip side, the devaluation, which makes Brazilian beans cheaper on world markets, is bad news for U.S. growers.

The difference after the devaluation can be seen in Rondonopolis, in Mato Grosso state. There, a 60-kilo bag of beans was quoted at R$12.80 on Jan. 12, but in mid-February was going for about R$16 a sack.

The cash bonanza has caused concern among growers that the government may ask them to share part of the gains through an export tax. Growers vow to fiercely fight the imposition of any export tax.

"For sure, the devaluation is helping growers," says Flavio Roberto de Franca Jr., soybean analyst for ag consultants Safras & Mercado.

On average, soybean farmers have 25-30% of their debts, including fertilizers and agricultural chemicals, indexed to the U.S. dollar, says Franca. So growers will have a cash benefit for 70-75% of their costs. All receipts, however, are in reals.

Safras & Mercado pegs the 1998/99 Brazilian soybean crop, currently being harvested, at about 30.9 million metric tons, off 2.5% from its final estimate of 31.7 million tons for the year-ago crop.

The expected smaller crop reflects slightly less area planted, an estimated 12,893,000 hectares, down from the 13,237,000 hectares of 1997/98.

The big question is, "What will the devaluation do to costs of production for the next crop?" Franca asks.

In the wake of the real's devaluation, some local economists forecast that Brazil's soybean production could rise sharply in the coming years, putting further pressure on U.S. growers.

People closer to soybeans, however, caution that it's too early to predict Brazil's bean output in future years.

"We have to see the value of the real next September and October (when seeding begins)," says Antonio Sartori, a broker in Porto Alegre, the capital of Rio Grande do Sul.

The government is already sharply increasing domestic interest rates, thereby raising all costs for growers, points out Tony Silva, who is an independent soybean broker in Cascavel in western Parana state.

The government sharply raised domestic interest rates after the real collapsed to discourage the flight of dollars from the country.

It is in the interest of local consumers as well as the government, which seeks new revenue sources, to impose an export tax on soybeans, says Sartori.

Government officials told the Brazilian press that they do not plan to impose an export tax. In the past, however, such promises have not been a reliable indication of what the government might actually do.

Soybean growers are rushing to register bean exports because of the threat of an export tax on beans. The devaluation of the real also is thought to be a reason for the increased registrations.

Exports of beans totaled 9.4 million tons for the 1997/98 harvest, up sharply from earlier years after a new law exempted exports of primary products from taxes.

"According to current estimates, bean exports could total up to 12 million tons, and the country runs the risk of running an internal shortage," the federation of cooperatives for Brazil's southernmost state told its members in a bulletin.

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