Brazil’s currency, the real, has been trading around record lows in recent months, thanks largely to the President Jair Bolsonaro’s efforts to tear up a fiscal straightjacket and introduce an anti-poverty program ahead of elections in 2022.
Battered by the highest number of Covid-19 deaths after the U.S., Brazil’s commitment to fiscal restraint has become so threadbare that the career decisions of its more orthodox economy minister, Paulo Guedes, have become a market-moving indicator.
The broader global impact may be in commodity markets, though.
That’s because Brazil has an outsize role in a wide array of the world’s essential foodstuffs and minerals.
Land typically accounts for about a quarter of costs for Brazilian soybean farmers, but — unlike fertilizers and pesticides, global commodities whose prices tend to move in tandem with the dollar — it doesn’t really rise in price when the real weakens.
As a result, production in the current crop season is projected to hit a record of more than 5 billion bushels.
Exports will total 2.66 million metric tons in the 2022 marketing year, the USDA reported this month, driving Brazil’s share of the global trade from around 18% in 2017 to 22% now.
In chicken, the effects have been muted by the way that currency depreciation, pandemic and inflation have hit living standards.
Analysts expect output by the world’s biggest rust miner Vale SA will grow by about 20 million metric tons next year, but company forecasts may come in short of that when they’re presented later this month, Bloomberg News reported.
Traditionally, Brazil has been such a dominant producer of the arabica beans from which high-quality brews are made that speculators would use them as a way of placing bets on the real, and vice versa.
Investors don’t expect this to be an anomaly, either: With reports of poor crop performance from the coffee belt, traders’ net long position in arabica futures is only just below record levels, suggesting they expect prices to rise further.
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies.