Brazil

Soybean growth

Beef bans have hurt this year, but other agricultural sales have leapt

The Brazilian economy just doesn’t seem to be able to get out of the gate and both analysts and government officials admit that GDP will shrink again next year. However, there is significant disagreement between analysts and government about what is happening. The government generally believes the economic slowdown is due to global inflationary pressure (perhaps unsurprisingly as the government cannot be held responsible for global trends) that has forced central banks, including Brazil’s, to raise base rates. Of course disrupted supply chains across the world have adversely affected Brazil’s exports and imports with the knock-on effects for employment and consumer spending.

The government hopes the national economy will expand by nearly 5% this year. That is expected to slump to 3.5% or at best 4% next year. This while Brazil’s central bank has increased its Selic base rate (aka the Brazilian federal funds rate) to 7.75% this year compared with 2% at the start of 2021.

Brazilian exports however remain problematic. This is largely due to China’s decision to continue to uphold a ban on meat imports from Brazil which is costing the country somewhere in the region of $450min taxes alone – a significant hit to the government treasury. Uruguay, Argentina and other Latin American countries have naturally picked up the slack, profiting from Beijing’s decision, and obviously hoping to keep those export contracts even if China lifts its ban on Brazil. The ban was due to mad cow cases detected in September in Minas Gerais and Mato Grosso. However, the US has helped out Brazil - exports of Brazilian beef to the US rose a whopping 183% during the first 10 months of this year, according to Brazil’s Economy Ministry. Though it should be noted that this is only a fraction of the gigantic volumes China normally orders and that two other major Asian markets for Brazilian beef - Japan and South Korea – have also implemented an ongoing ban.

Brazil’s other major export – soybeans – appears to be holding up. This is good news for those that back Brazil’s decision to increase its soybean-harvested area, which controversially can involve destruction of rain forest. It has increased since 2000 by 160%. Normally when we talk of Brazil’s soybean export growth it is in relation to Chinese demand. However, it should be remembered that EU demand is strong and growing - over half of the EU’s needs as soybean meal come from Brazil and Argentina. This year there has also been increasing demand from a variety of diverse markets for soybeans including Thailand, Turkey and Russia along with Vietnam, Indonesia and Algeria. Brazil is betting on this growth being sustained - in 10 years (2030–31), Brazilian soybean production is projected to be 175.4m tonnes, an increase of almost 30%. ●

Leading Exporters of Soybeans, 2020

Country % of global total exports Brazil 43 USA 40 Argentina 5 Paraguay 4 Other Countries 8

Total 100

Source: Federal Reserve Bank of St Louis/US Department of Agriculture