WASHINTON, D.C., U.S. — Brazil’s soybean production is forecast at 103 million tonnes in 2016-17, an increase of 3% compared to the current season, the U.S. Department of Agriculture’s (USDA) Foreign Agricultural Services said in a April 1 report.

The 2016-17 planted area is forecast to increase to 33.7 million hectares. The slower pace of area growth compared to the last five years is attributed to higher production costs and economic/political challenges in Brazil. Soybeans are forecast to represent over 50% of the cultivated area in Brazil in the upcoming growing season. The crop is expected to be more profitable compared to other commodities, but returns at the farm level are forecast to be lower as a result of the higher production costs.

It is important to highlight the volatile economic environment Brazilian farmers have been experiencing in the last two years as a result of the political crisis. Currently, the Brazilian president is fighting calls for impeachment due to perceived elections irregularities, the report said. Due to this difficult political environment, the real depreciated over 40% in 2015. The real depreciation resulted in significant gains for Brazilians farmers, as they were able to buy inputs using a stronger real in the first half of 2015 but domestic prices were protected by a weaker real at harvest in the second half of the year. Since soybeans are priced in U.S. dollars in the international market, the weaker exchange rate increased domestic soybean prices (more reals per U.S. dollars). This exchange rate situation cushioned the overall decrease in global prices, the report said.

Soybean exports for the 2016-17 marketing year are forecast at 57 million tonnes based on strong demand by China. Due to export demand and new biodiesel mandates, soybean meal and oil production is forecast to increase.

The weaker real also allowed Brazilian soybean exports to be more competitive in the world market. Soybean export receipts were up 12% in 2015 as a result of higher domestic prices. However, this economic volatility, as a result of the political crisis, will be a factor again in 2016. If the real continues to weaken due to the political uncertainty, domestic prices could increase, potentially translating into additional incentives to increase area. However, if the real gets stronger (and global soybean prices stay at current levels), Brazilian farmers could face lower domestic prices for the 2016-17 growing season.