Brazilian agribusiness has been highlighted over last decade for a couple of reasons. It became a major producer and exporter of soybeans in the world. In the 2020/21 crop, despite all the weather issues and late planting, Brazil expects to harvest 129.7 million tons, a 6.8% increase compared to 2020. Brazilian soybeans are the “little darling” of China — the main destination for exports. Brazil already sold almost 90% of all soybean production due to strong prices sustained by the devaluation of the Real in 2020.
What about corn? Brazil has two crops in the year. The first one is between October to December and the second, which is called “safrinha,” is from January to April. The total corn crop production is expected by analysts to be 103.2 million metric tons (mt).
Brazil became a very important worldwide corn supplier in the last decade. According to CONAB (National Supply Company), Brazil produced 50 million mt in the 2008/2009 crop. In the last 10 years, it has doubled production, reaching 102 million mt for the crop year 2019/20. Moreover, a USDA report appointed Brazil as the third largest corn crop in the world, behind the U.S. with 346 million mt and China with 261 million mt. Brazil is the second largest corn exporter with 35 million mt, just 10 million behind the U.S. Brazil has potential to be No. 1 in the next decade.
Domestic demand is also increasing. Since 2017, corn ethanol plants and other companies have been investing in Mato Grosso, Brazil’s corn belt region. Around 2 million tons of corn are dedicated to these plants.
But it is not all about grains. Brazilian agriculture commodities products are increasingly moving into new international markets in Europe, the U.S. and Asia. For example, in 2020 Brazil was the first country to export fresh melon to China — the largest consumer of the fruit. China consumes about half of the world production. In 2017, it represented 17 million tons. In the first 8 months of 2020, Brazil exported 1.1 million tons of beef, valued at $ 4.8 billion dollars, a record in the historical series of the Ministry of Agriculture and Livestock (Mapa). Mato Grosso state, which has the largest bovine herd in the country, led the way, with 242,000 head shipped from January until August 2020, amounting to $ 1 billion dollars, an increase of 31.6% from last year. Again, China was the main destination. According to the Brazilian Rice Industry Association, Brazil exported 1.8 million tons of rice in 2020, 26.5% more than the year before. Hong Kong was the major buyer.
Besides all the new products and international markets Brazil has gained, we need to take a close look at domestic demand. Brazil’s main traditional and favorite meal includes rice, beans, eggs and meat. By the way, sounds delicious, don’t you think?
Last year, due to the lockdown, people started cooking more at home. The government also instituted an emergency monthly payment of BRL 600,00 to assist with low wages, and people started buying more rice and beans. In 2019, Brazil harvested 12 million tons, but due to low prices, many fields migrated to soybeans. Last year, Brazil produced only 10.4 million of rice. The devaluation of the Brazilian real also incentivized exportation. Mexico, for example, paid around BRL 100,00 per bag, when the domestic market was only paying BRL 40,00. An increase in exports, plus higher domestic demand, resulted in higher prices. As a way to avoid the lack of rice, the government suspended the rice import tax of 8% last year and Brazil started buying from its neighbors.
Corn and soybeans are also used by food processors and the meat industry. Higher prices and lack of supply are also driving inflation in Brazil. In the beginning of 2021, the domestic market reacted and realized how important risk management and financial instruments are for their benefit. For the first time, BBM (Brazilian Commodity Exchange) has registered a rice futures contract trade. At the end of January, 10 contracts were negotiated, reflecting 5,000 tons.
Challenges remain ahead for the rising king. To remain on the throne, Brazilian agribusiness needs to become more professional, use risk management tools and guarantee profitability. Financial education will be key and, most importantly, it will help keep Brazilian agribusiness strong.
(The research views expressed herein are those of the author and do not represent the views of CME Group or its affiliates). Roberta Paffaro (LinkedIn: Roberta Paffaro Instagram: @robertapaffaro) is a Brazilian journalist, economist, agribusiness specialist, and master’s student in Agribusiness from FGVS -SP. She has been working in CME Group in the Brazil office for almost 13 years. She does public speaking and is the co-author of the Portuguese book: “Women in Agribusiness – Inspirations to win challenges inside and outside the gate.”
SOURCE: OCJ
