Soybeans and Latin America
22 November 2011
Over the past decade, Brazil's global share of soybean production has continued to increase. Brazil now trails only the United States as the leading producer of soybeans. With infrastructure developments decreasing the costs of transportation, soybean production has expanded into the vast farms of the center-west regions. Though commodity prices have dropped recently and the appreciation of the Real has been curtailed of late, soybean futures on the BM&FBovespa are still well above 2009 prices. This increase in price has had several effects, both positive and negative on the Brazilian economy; perhaps most importantly, this has lead to rising farmland values for soybean producers. In turn, these rising values have lead to many farmers replacing full-season corn with soybean production in Southern Brazil. The increasing importance of soybean production in Brazil has driven maturation of this market on the Brazilian futures exchange, the BM&FBovespa. In early 2011, the exchange launched a new cash-settled soybean futures contract. This launch not only increases participation of cooperatives, exporters and cereal merchants on the market, but also creates greater efficiency in the sale of this commodity (which had previously been physical delivery). However, Brazil is not the only kid on the block seeing an increase in soybean production. China's massive appetite for raw materials and agricultural products has lead other commodities exporters like Argentina to pivot towards soybean production. Like in Brazil, Argentinian farmers have radically shifted towards soy production, displacing cultivation of grains and even beef. As a result, the Rosario Futures Exchange has seen large increases in trade volumes of soybean futures. This growth in Brazilian, Argentinian (and Chilean) markets can prove to be a "foot in the door" moment, providing an impetus for greater collaboration, cross-listing, and development of products among Latin American exchanges. Already the BM&FBovespa has been pushing for greater pan-Latin American development, signing MoU's with the Bolsa de Comercio de Santiago (Chile), and having ongoing discussions with Peru and Colombia. I wonder how long before we see hedging of Argentinian soybeans with Brazilian soybeans (or vice versa).