Grains

Eight commodities account for nearly two-thirds of Brazil’s exports

Oct, 20, 2023 Posted by Gabriel Malheiros

Week 202340

From January to September this year, eight key commodities —soy complex, crude oil and fuel oils, iron ore, meat complex, sugar, corn, cellulose, and coffee— contributed significantly to Brazil’s exports. Together, they represented a value of $163.2 billion, or 64.5% of the country’s total exports, which stood at $253 billion. This proportion is marginally higher than the 63.5% observed during the same period in 2022 and vastly greater than the 26.3% recorded in the first nine months of 2000, according to statistics provided by Brazil’s Department of Foreign Trade (Secex).

Compared to the previous year, the growth in the export share of these commodities in 2023 can be primarily attributed to an uptick in sales to China. From January to September, exports to the Asian nation, primarily of basic products, climbed by 10.8%, reaching $77.2 billion. Consequently, the percentage of sales to China rose to 30.5%, a jump from 27.5% during the same months in 2022.

The overall value of exports saw a minor decline of 0.1% for the year up to September. During this period, sales to the U.S. and the European Union (EU) decreased by 4.5% and 11.4%, respectively. Consequently, the percentage of sales to the U.S. dipped from 11% to 10.5%, while sales to the EU dropped from 15.3% to 13.6%.

Over the past 20 years, a significant increase in exports of these commodities can be primarily attributed to China’s robust demand for goods that Brazil produces proficiently. This demand surge coincided with challenges faced by Brazil’s industry in maintaining competitiveness. Economist Livio Ribeiro of BRCG Consultoria and an associate researcher at the Brazilian Institute of Economics at the Getulio Vargas Foundation (FGV Ibre) encapsulate this trend as “China in the vein.” He elaborates, “We have integrated into China’s input and supply chain by offering essential goods and products they consume and utilize.” To put this into perspective, from January to September 2000, China made up a mere 1.9% of Brazil’s export market.

Highlighting Brazil’s efficiency, Sérgio Vale, the chief economist at MB Associados, notes, “Given our high agricultural productivity, we’ve been able to cater to the rising Chinese demand.” He adds that this applies to the mining sector as well. “Following its privatization, Vale has met the demand by supplying the iron ore sought by the Chinese.” Another area of note is the export of crude oil, predominantly destined for China, and fuel oils, both of which have seen substantial growth in production and demand.

Concentrating exports primarily on a select group of commodities carries the risk of being vulnerable to price volatility, which can vary dramatically. This trend underscores Brazil’s competitive edge in producing these goods, most of which are in high demand from China —now the world’s second-largest economy after the U.S. Despite China’s slowing economic growth in recent years, it remains the primary market for most of these commodities, with fuel oils, soybean meal and oil, and coffee being exceptions. For certain products, China is the dominant buyer by a significant margin, such as soybeans (71%), iron ore (62%), beef (61%), and both crude oil and cellulose (47%).

Rafael Cagnin, chief economist at the Institute for Industrial Development Studies (IEDI), underscores the significance of China’s rapid economic growth paired with its urbanization. He states, “This momentum, driven by primary products to fuel China’s core industries and also cater to urban household consumption patterns, resulted in a surge in global demand, particularly in the 2000s, and a rise in commodity prices.”

Up to September of this year, the soy complex —including grain, meal, and oil— comprised 22.6% of Brazil’s total exports. That is the most significant share since the data series by Secex began in 1997. In monetary terms, sales of this grain saw a 9.9% increase, reaching $45.6 billion, compared to the same timeframe in 2022. This surge occurred despite a 16.7% price drop, propelled by a 23.8% spike in export volumes. The soybean yield for this year is predicted to break records, with an estimated growth of 26.5%, amounting to 151.2 million tonnes, as forecasted by the IBGE (Brazilian Institute of Geography and Statistics).

The chart below shows soybean (whether or not in meal form) exports from Brazil between Jan 2019 and Aug 2023. The data is from DataLiner.

Soybean exports from Brazil | Jan 2019 – Aug 2023 | WTMT

Source: DataLiner (click here to request a demo)

The volume of exports, rather than their prices, has predominantly driven the exports of iron ore and other commodities. From January to September, the exported quantities of iron ore increased by 7.3%. However, the prices dropped by 11.1%. Consequently, the export value decreased by 6% to $21.6 billion compared to the same period in 2022. This value represents 8.5% of Brazil’s exports during these nine months. The highest contribution of iron ore to exports was observed from January to September 2021, at 17.1%. Around mid-2021, prices had peaked, surpassing $220 per tonne.

In the last two years, prices have notably declined, clarifying the reduced value of iron ore exports. These exports were valued at $36.4 billion from January to September 2021. Although the prices began to ascend at the end of August, they currently hover below $120 per tonne.

Conversely, corn exports have significantly expanded in the past two years. In 2023, Brazil emerged as the world’s leading corn exporter. Sales from January to September this year surged by 27.7% to $8.7 billion compared to the same timeframe the previous year. This rise was propelled by a 40.2% increase in exported volumes. Consequently, corn now constitutes 3.4% of Brazil’s international sales, a substantial leap from the 1.2% recorded during the same months in 2021. Mr. Ribeiro emphasizes the increasing demand from China, which has curtailed its U.S. corn imports. Hence, from January to September, 21% of Brazil’s corn exports were destined for China, marking it as the primary market. That is a significant increase from China’s 2.7% share in 2022. Brazil’s corn harvest in 2023 is projected to set a new record, with an estimated yield of 131.8 million tonnes, a 19.6% growth from the previous year.

Over the past 23 years, the growth in crude and fuel oil exports from Brazil has been notably significant. From January to September 2000, these two commodities comprised only 1.5% of Brazil’s international shipments. Fast forward to the same period this year, their share rose to 15.1%, making crude oil and fuel oil Brazil’s second-largest export. That has been the trend since 2017, with 2021 being the exception when a surge in ore prices caused it to overtake the combined value of crude oil and fuel oil exports.

China remains the dominant buyer of Brazil’s crude oil, accounting for 47% of the total from January to September. Mr. Cagnin notes that the increase in crude oil production, spurred by the commencement of pre-salt extraction in 2010, positioned Brazil as a significant player in the global oil market. Meanwhile, regarding fuel oils, which are products of the refining industry, Singapore was the top market this year, receiving 47% of exports.

Commodity exports’ robust performance is poised to set a new trade balance record for Brazil this year. From January to September, the trade surplus amounted to $71.3 billion. According to the recent Foreign Trade Index (Icomex) report by the Getulio Vargas Foundation, China contributed to 52.8% of this surplus. The trade balance for the first nine months of 2023 already surpasses the entire record set in 2022, which stood at $61.5 billion. This year’s substantial surplus can also be attributed to an 11.7% import reduction during the first nine months. Mr. Ribeiro forecasts a surplus of $86 billion for 2023. Still, he anticipates this figure to decrease to around $60 billion in 2024 due to a slowing global economy.

Source: Valor Econômico

To read the original news report, please visit: https://valor.globo.com/brasil/noticia/2023/10/20/oito-commodities-respondem-por-quase-dois-tercos-das-exportacoes.ghtml

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