Brazilian producers were given a sudden increase in competitiveness this week following the re-election of Luiz Inácio Lula da Silva as the country’s president.
Investors had expected that his right-wing opponent, Flávio Bolsonaro, son of former president Jair Bolsonaro, would be victorious and would introduce more pro-business policies.
The election of Lula turned those expectations on their head.
Those same investors who had expected improvements in the country’s fiscal outlook rushed from their exposure to the country’s financial assets. This led to a drop of over 10% in Brazil’s currency, the real.
Good news for farmers
While that may be bad news for those investors, it is good news for Brazil’s farmers and food processors, who can take advantage of the lower value of the real.
The devalued currency means that they will get paid more reals when they sell commodities on international markets.
The knock-on effect of this potential increased supply from Brazil has been a drop in global prices for sugar futures, which were down as much as 7%; coffee futures, which dropped 6% and soybeans, which were 3% lower.
The bonus for Brazilian farmers may be short-lived, however, as many of the inputs for their crops are priced in US dollars rather than Brazilian real, meaning they will soon be hit with higher costs.
For Ireland, the price moves should have little direct effect. Supplies of soybean from South America to Ireland are generally from Argentina rather than Brazil.
While the latest data from the country’s agriculture ministry shows there was a significant increase in beef exports to the EU in the wake of the provisional implementation of the Mercosur trade deal, those shipments have been suspended since early September.
There is also some evidence that Brazil’s beef sector is not in a position to take advantage of any improvement in market conditions.
Industry forecasts suggest the country is in a period of herd rebuilding following a rush to fill its China quota earlier this year.
The chances of Brazil being able to take advantage of the lower prices to increase its market share in Britain are also under threat after that country initiated its own inspection of Brazil’s antibiotic controls.
