Agribusiness Newsletter in December: Good News

November and December brought more complications in the international area. Different signs coming from a possible first phase of an agreement between China and the USA, more events of the African Swine Fever in Asia and insufficient agreements coming from the Climate Summit in Spain. The carbon market and advancements towards the payment for environmental services was postponed for next year.

In Brazil, the news is better with the GDP growing 0.6% in the quarter, and The Wall Street Journal talking about the improvement of the Brazilian economy as well as new prospects for interest rate reduction. The Focus Report of December 2, 2019 (Central Bank) brings expectations for the IPCA (Extended National Consumer Price Index) of 2019 at 3.52%, and 2020 at 3.60%. GDP would close by 0.99% this year and 2.22% by 2020. There is a lot of confidence in the recovery of Brazilian economy, since 2020 will start with low inflation, low interest rates, good exchange rate and progressive reforms in several areas. S?o Paulo stock exchange faced the record in value. 

Regarding to agribusiness, the most important variable now is the weather over our crop, which needs to be big for Brazil to take advantage of the opportunities. In some places it was dry and needed replanting and in others, there is also a delay, which may result in increased risk to the second crop of corn. According to CONAB’s estimate in November, 246.4 million tons are expected, which is an increase of almost 2% over the previous harvest (4.3 million tons more). The area is 64.1 million hectares, being an increase of 1.4% over the previous cycle.

According to data from the Ministry of Agriculture, Livestock and Food Supply (MAPA), exports of Brazilian agribusiness grew 0.8% compared to October 2018, totaling US$ 8.41 billion versus US$ 8.35 billion last year. The driver of this increase was corn, with 91.3% more, selling US$ 1.02 billion in the volume of 6.14 m.t. (+ 97.6%). Another highlight is cotton with a high of 43.7%, selling US$ 440.73 million, beef with US$ 806.61 (+ 30.4%), and pork with US$ 148.51 million (+ 38.5%). Brazilian imports increased by 1.3% (US$ 1.21 billion) and the surplus was US$ 7.2 billion (0.67% higher). According to meat data in November, exports grew 28% over the same month last year, with beef prices rising by 22% in US dollars, pork prices rising by 30% in US dollars, and chicken prices rising by 6%.

The five agribusiness facts to follow daily in December are: 

1) The progress of our crop and the behavior of the weather. In addition to the development of the crop, follow the growth of the crop in Argentina;

2) The new estimates of the impact of African swine fever in Asia and the prices and quantity of meat imported in this last quarter of the year;

3) Trade issues development in China and the USA;

4) The beginning of the year and the effective implementation of the biofuel policy in China;

5) The progress of reform plans in Brazil and their impacts on agribusiness and exchange rates.

Marcos Fava Neves is an Agribusiness & Strategic Planning Professor at the Business Schools of the University of S?o Paulo (FEARP) and Funda??o Getulio Vargas (EAESP)