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Brazilians Betting China’s Growth Will Help Brazil

Brazilian exports will be favored by the increase in prices of some of the main agricultural commodities this year. Coffee, sugar, soy, some products traded by the country on the foreign market, are on the list of products that should present growth in foreign prices in 2006

"There is a tendency for appreciation of agricultural commodities of between 10% and 15%," stated the secretary general of the Arab Brazilian Chamber of Commerce, Michel Alaby.

The increase should take place due to problems in the crops of countries that are large producers and also due to an increase in world demand for food, which is based on the growth of economies.

China should grow 9% this year, the United States around 4%, Latin America, 4.1%, and the Arab countries, according to the secretary general of the Arab Brazilian Chamber, around 7%.

"China will be the power house of world economic growth," stated the economic analyst of consultancy company GRC Visão, Thiago Davino.

Coffee and sugar are already presenting rising prices, according to Eugênio Stefanelo, a technician at the National Food Supply Company (Conab) and professor at the Federal University of Paraná.

Last year, Cuba and the European countries, which produce sugar from sugar beets, also had production problems, reducing the world sugar stocks.

The lower sugar stocks at the beginning of 2006, together with the growing demand, should provide an impulse to price increases. The estimate of the International Sugar Organization is that the demand this year should be two million tons over production.

Coffee prices should also continue rising, as happened in 2005. The forecasts of the International Coffee Organization show world production of between 118 million and 122 million bags for a consumption of 118 million bags.

The possible surplus, of four million bags, should not be enough to keep prices stable, as they are already being affected by the coming harvest, which should be lower than this year’s as the culture is biennial. The world coffee consumption grows around 1.5% a year.

Davino explained that the purchases of products like coffee are volatile and accompany the growth of world income, as it is not a product of basic need.

"You may remove it from your shopping list," he explained. When the income of countries grows, it returns to the purchase lists of families. "People drink coffee because they like it," he explained.

The Drama of Soy

Soy has also started registering higher prices due to the drought that affected the crops in Argentina and southern Brazil. Losses are forecasted in the crops of the southern Brazilian states of Rio Grande do Sul, Santa Catarina and Paraná.

In Paraná, the harvest reduction should be around 5% and in Santa Catarina around 15%. In the state of Rio Grande do Sul, the southernmost, there are still no forecasts. In case there is a small harvest reduction, according to Stefanelo, production should drop from the estimated 58 million tons to around 54 million tons.

"Therefore, it is possible that the price of soy may be higher than the average in 2005," stated Stefanelo. It is not yet possible, however, to know whether the higher price will be enough to compensate the volume of production loss.

In 2005 the price of soy was around US$ 6 per bushel at the Chicago Board of Trade. In 2006 it may rise to US$ 6.5, according to Stefanelo. Last year, Brazil had revenues of US$ 9.8 billion with soy complex exports.

Wheat prices should also rise as, due to the low prices offered last year, producers have reduced the cultivated area in Argentina, one of the largest world producers of the commodity. Wheat should rise from US$ 120 per ton in 2005 to US$ 150 this year. Brazil, however, is not a great exporter of wheat.

Financial Market

The foreign market movement is another ingredient for the increase of prices of agricultural commodities, according to the GRC Visão analyst. Low interest rates offered for US treasury bonds, according to Davino, are making investors migrate to other kinds of papers, like futures contracts based on agricultural commodities, appreciating prices.

This, according to Davino, has already occurred with papers based on oil, which have collaborated to recent elevations in the price of the product. Despite rising, interest rates in the United States are still considered low by the finance market.

Greater Revenues

The appreciation of agricultural commodities should provide a revenue gain to Brazilian exports, as a large part of the basket of products Brazil sells abroad is agribusiness products.

In 2005, of the US$ 118 billion exported by the country, US$ 43.6 billion corresponded to the sector. Michel Alaby stated that the rising prices may even favour sales to the Arabs, as they are large buyers of Brazilian products like coffee and sugar.

Stefanelo stated, however, that the gain for the country would be greater if the dollar were not so depreciated against the Brazilian currency, the real.

"Farmers are paid in reais. The impact of higher commodity prices is small," he said.

The secretary general at the Arab Brazilian Chamber believes, however, that there are no reasons for exchange rates to oscillate this year and, therefore, any appreciation of commodities from now on should be translated into gains. "Exchange rates should not exceed R$ 2.40 per dollar," he said.

Anba – www.anba.com.br


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