• The Brazilian real fell to a new low against the US dollar this past week. 

• Despite tactics employed by Brazil's central bank to shore up that country's sinking currency. 

• The situation, and theories behind it, get more interesting when we add the main players of the BRICS alliance into the equation. 

While the rest of the world was making merry the past couple days, the Brazilian real (BRLUSD) was getting buried as it fell to a new all-time low versus the US dollar of 0.14827 (6.7445). I did a quick Google of the subject and the story remains the same: Brazil’s central bank is attacking the weakness of its currency by raising interest rates as well as reportedly borrowing $8 billion US dollars which was then used to buy real. This is quite a move for a BRICS country (with Brazil the Big B in that alliance).

The collapse of Brazil’s currency could have ripple effects across US grain markets as well. The old theory is that if a country’s currency weakens, the commodities that country produces becomes more attractive on the global market. This past July I wrote of how I don’t think this is as important a factor as what it has always been made out to be, with economics replaced by politics. I haven't changed my mind, to the surprise of no one. 

What will Brazil’s grain producers do? In the past, when neighboring Argentina has bounced from one currency crises to the next, producers viewed their latest crop (usually soybeans) as the country’s true currency. Will Brazil see the same situation develop? I have my doubts. Again, BRICS is made up of some of the most powerful trading partners in the world: Brazil, Russia, India, China, South Africa (and others). Obviously, one of those stands out as a country not bothered by the collapse of the real. It’s not hard to imagine the world’s largest commodity buyer has had a hand in keeping pressure on its main supplier’s currency. However, I mentioned this to a fund manager I trust and his reply was, “China's heavy investment over the last number of decades would be why it doesn't want the real to collapse”. As usual, it's possible I have tunnel vision on a subject, almost any subject. 

However, I still get a laugh out of the news from January 2020 when the US administration at the time dropped its designation of China as a currency manipulator. Why? Well, the same US administration was attempting to manipulate its own currency, keeping it weak at a time when tariffs and trade wars had lit the fire of inflation. But that’s a story for another day. For now, it's interesting to note the FOB price of soybeans in Brazil is as close to the FOB price for US soybeans at New Orleans as it has been since last summer.