Political Turmoil in Brazil Negative for Ag Sector

Posted on 03/09/2017 10:24 AM

South American Crop Consultant Dr. Michael Cordonnier says despite the ongoing recession in Brazil, the ag sector has prospered amid a weak Brazilian real. But that may not be the case going forward amid political turmoil resulting from a corruption investigation that is getting closer to current Brazilian President Dilma Rousseff. Last Friday, federal policy took former President Luna in for questioning and executed 33 different search warrants in a bribery and money laundering scheme. If Luna is indicted, it increases odds the current president will be impeached.

Cordonnier explains the ag sector in Brazil over the past year has benefited from a devaluation of its currency, the real, which he says "artificially" lifted grain prices and made Brazil more competitive on the global market. "I have said many times in the past that the exchange rate is often times more important to Brazilian farmers than the actual international grain prices and right now is another example of that," he says.

"The Brazilian currency strengthened late last week when it appeared that the investigation was closing in on Lula and Dilma. This is not good news for Brazilian farmers," explains Cordonnier. "The result is falling domestic grain prices and farmer selling drying up. If the currency would continue to strengthen, Brazilian farmers would be confronted with more realistic grain prices instead of the artificially high grain prices that resulted from the devaluation."

As a result, farmers in Brazil could be confronted with higher costs and lower prices for the 2016-17 growing season, warns Cordonnier.

Dr. Cordonnier 2015-16 Soybean Estimates
Est.
Maximum
Minimum
2014-15

in million metric tons

Brazil
100.0
103.0
98.0
96.2
Argentina
60.0
62.0
59.0
60.8
Paraguay
8.8
9.3
8.3
8.4
Bolivia
3.0
3.3
2.7
2.6
Uruguay
3.5
3.8
3.2
3.1
Total
175.3
181.4
171.2
171.4
Dr. Cordonnier 2015-16
Corn Estimates
Est.
Maximum
Minimum
2014-15

in million metric tons

Brazil
84.0
87.0
81.0
85.4
Argentina
25.0
27.0
23.0
27.0
Paraguay
3.1
3.4
2.7
3.0
Bolivia
0.7
0.8
0.6
0.7
Uruguay
0.5
0.6
0.4
0.5
Total
113.3
118.8
107.7
116.2


Cordonnier left his South American crop estimates unchanged this week and says he has a neutral bias toward the Brazilian soybean crop and the Argentine corn and soybean crops. But he has a neutral to higher bias toward the Brazilian corn crop as he anticipates farmers will increase their safrinha corn acreage if the weather cooperates.


 

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