Dec. 8, 2017
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Even though commodity prices were low in 2017, Brazilian agriculture is closing out 2017 as one of the strongest sectors of the Brazilian economy. According to the Agriculture and Livestock Confederation of Brazil (CNA), the Gross Domestic Product (GDP) for the agricultural sector (PIB - Produto Interno Bruto) equaled 23.5% of the Brazilian economy.
The GDP for agriculture in 2017 will decline 2% compared to 2016, but it is expected to improve in 2018 by 0.5% to 1.0% depending on internal political developments and international commodity prices. Even with the decline in 2017, the agricultural sector was still the best performer in the Brazilian economy in 2017.
Grain production in Brazil in 2017 hit a record high due to ideal weather. The problem with Brazilian agriculture in 2017 was lower prices. The corn prices in Brazil fell 32% compared to a year earlier and the soybean price fell 16%. Cotton was the only major row crop that registered increased production in 2017 including increased revenues.
The livestock sector benefited from lower feed costs due to declining grain prices, but it suffered from reduced consumption. Domestic meat consumption was down due to economic challenges resulting from the prolonged recession and a tainted meat scandal earlier in 2017 that resulted in lower meat exports. Both domestic meat consumption and exports have started to improve during the last few months.
From January through October, the Brazilian agricultural sector created 93,000 jobs, which was the biggest expansion in 5 years. Even though grain production is expected to decline in 2018, improved prices are expected to compensate for the lower production. The results in 2018 will depend heavily on internal political developments in Brazil and actions by the Brazilian Congress.
Brazil will hold new presidential elections next October, and depending on the political winds, it could have a big impact on the Brazilian currency, which in turn, could impact agriculture. The Brazilian Congress is also contemplating changes to the pension system and worker rights, both of which could impact agriculture as well.
The currency exchange rate is often times more important to Brazilian farmer's bottom line than the actual price of the underlying commodity. A weaker currency is generally beneficial for farmers whereas a stronger currency is generally negative for Brazilian farmers.