Commodities prices in Brazil

Commodity prices are likely to remain steady in 2022

Jan, 03, 2022 Posted by Gabriel Malheiros

Week 202201

Commodity prices exported by Brazil exceeded expectations by the end of 2021, showing positive movements that had not been recorded in years. Steady demand rates, limited supplies caused by adverse weather conditions, as well as high dollar and oil prices led to the strong upward trend observed, which is putting commodity prices at high levels at the start of 2022. The expectation is that the pace of valuation will slow down, but, according to analysts, the room for expressive devaluation is still restricted.

After stepping up another ladder in December, Arabica coffee ended 2021 with a 51.44% increase compared to 2020 in New York, the highest level since 2014 (US$ 1.7059 per pound), according to calculations done by Valor Data, which took into consideration future contracts of second-hand delivery. As the Center-South of Brazil, the region that leads the world’s supply of Arabica, goes through either drought or frost periods, the smaller-than-usual harvests were fundamental for the leap in prices. If the problems persist, quotes will tend to remain at their current valuation.

Demerara sugar is another commodity that Brazil is the largest exporter of and, similarly, the product has also been affected by the bad weather in the Center-South the country. Demerara sugar finished the year with an average price 38.5% higher than the previous year in New York (17.78 cents per pound). This is the highest value recorded since 2016, which is probably associated with the increase in oil prices and its consequences to the ethanol market. As projections point to a global deficit in the 2021/22 harvest, largely thanks to Brazil, the margin for retraction is narrow.

The Center-South region is also pivotal to the global supply of orange juice. The decrease in the harvest rates in the agricultural belt that ranges across São Paulo and Minas Gerais indicates contributed to male frozen and concentrated orange juice end the year with an average value 8.65% higher than in 2020 (US$ 1.2527 per pound). Notwithstanding, even though Brazil has a preponderance of 80% of global orange juice shipments, New York mostly reflects the reality of the American market, where demand decreased after the start of the pandemic but remained relatively solid.

As for the cotton market, oil prices combined with increased textile production and heated Chinese demand help explain the 44.1% appreciation in the average value of futures contracts traded in New York vis-a-vis 2020. December showed an accommodation in terms of price levels, but the prospects point to attractive prices in 2022, especially if the global economy shows that it has in fact grown more resistant to covid-19.

In the case of soybeans and corn – noted that Brazil is the global leader of soybean shipments and is trying to become the second-larger exporter of corn – 2021 presented several supply problems last year. But the steady consumption of cheaper-than-beef proteins (such as pork, chicken and eggs, which depend on the grains for animal feed) was the main factor that regulated the relationship between supply and demand and allowed it to remain with little slack.

In terms of the soybean market, as pointed by Valor Data, the average value reached in 2021 was 42.52% higher than in 2020; the highest since 2013. On the other hand, the corn market yielded a 53.01% higher average price compared to 2020; it is relevant to mention that the price level reached last year had been the highest since 2012.

The results recorded in 2021, as well as prospects for 2022, point out that Brazilian exporters do not have much to complain about commodity prices given that the current levels will help offset a good part of the losses recorded in crops due to the weather, even though rising input costs have already started to squeeze profit margins.

On the other hand, it’s hard to imagine a relief scenario for retail consumers. Food inflation was globally perceived in 2021 and, it seems, will continue to be.

Source: Valor Econômico

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