Brazil’s weather shocks affect global commodity markets

After enduring The worst drought For nearly a century, with a burst of cold temperatures, the areas within the Brazilian agricultural belt are preparing for further adversity, as the La Niña weather appears likely to bring more drought conditions later this year.

In the small mountain town of Caconde in the State of São Paulo, the 44-year-old third-generation coffee grower Admar Pereira estimated that because many shrubs in his small plantation have died in the cold, this year’s crop is Production will be cut by half.

“This is already a very small gain. With the frost, the situation gets worse,” he said. “A lot of people have lost everything.”

Brazil is an agricultural powerhouse and a major exporter of commodities such as corn, sugar, orange juice and meat, but this year’s weather interruption has led to soaring prices of agricultural products coffee As well as sugar in the international market, it also provides further impetus for bullish corn traders.

“Brazil is such a big exporter, especially for coffee and sugar, regardless of
Trader ED & F Man analyst Kona Haque said that what happens in the country will affect the market.

This South American country is the world’s largest coffee producer and exporter. The preliminary estimate of next year’s crop yield loss is 10% to 50% of the previous forecast, pushing up prices. Although the base price of Arabica coffee was lower than the peak of nearly US$2.20 per pound in July at US$1.84, it was more than 50% higher than a year ago.

Some scientists have linked soil drought in the southern and central states (where most of the country’s agricultural output is located) with insufficient rainfall, which is related to the destruction of the Amazon River.

“By cutting down part of the forest in this area, you are removing moisture that helps to form rainfall in the Midwest, Southeast and South [of Brazil],” said Lincoln Muniz Alves, a researcher at the National Institute of Space Research (INPE), who contributed to the UN’s landmark report on climate change last week.

In recent weeks, a series of unusual polar air masses have moved over large areas of territory, bringing mercury levels below zero in some places, which has made the drought even worse.

Agricultural experts are increasingly worried that the recurrence of the La Niña phenomenon may extend the drought into the new year. They worry that this may disrupt the flowering of coffee trees that have been weakened by drought and frost.

Rabobank analyst Carlos Mera said: “The worst case is that you will have a little rain and then there will be three weeks of dry weather, which means the flowers will fall off and will not produce.”

The previous La Niña phenomenon was a weather phenomenon caused by the cooling of the Pacific that developed in the second half of 2020. It was blamed on the drought conditions in the United States and Latin America and increased rainfall in Australia.

Various meteorological agencies have given more than 50% chance Which happened for the second year in a row. Tirso Meirelles, vice chairman of the São Paulo State Agriculture and Livestock Federation (Faesp), said this is worrying.

“Depending on the intensity, it may bring a drier climate during the spring and summer periods when we produce food crops. This may really affect our agricultural production,” he said.

Brazil is the second largest exporter of corn, which is mainly used for livestock feed, and many growers are also affected by drought and frost. Michael Cordonier, a grain consultant focused on South America, said analysts have lowered their production forecasts.

He said that due to the drought, farmers in some provinces planted a month or more later than normal, but the subsequent July frost killed the corn at a critical growth stage. Corn futures soared earlier this year, and the price of Chicago jumped to a nearly eight-year high of US$7.75 per bushel in May. However, due to better weather in the United States, it has now fallen back to around US$5.66.

“Everyone is constantly cutting their [Brazil corn production] Numbers,” he added, noting that the output before the frost was usually over 100 million tons, but it was reduced by about 20%.

Farmers and consumers in Brazil are affected by the weather. Cordonnier said that the shortage of corn in the livestock feed industry has forced it to switch to imports. It is expected that the normal overseas purchases this year will be about 1 million tons, which will increase to 3.5 million to 4 million tons.

Welber Barral, the founder of BMJ Consultancy, said that the shortage of corn will put further pressure on rising food prices, which is “already a concern of the Brazilian government”. Brazil’s annual inflation rate reached a five-year high of 8.6% in mid-July.

Frost is also expected to affect the production of oranges and sugar in the world’s largest producer, thereby reducing the quality of crops. “If you use two oranges to make a glass of juice, you will need three. It reduces liquid productivity,” Faesp’s Meirelles said.

He added that extreme weather has also reduced grazing pastures and increased dependence on animal feed, which in turn may push up domestic beef and milk prices.

Although price increases are good news for some producers, they offer little comfort to those whose crops have been destroyed. In Caconde, coffee grower Pereira fears that the upcoming dry weather may be caused by another La Niña phenomenon.

“The weather forecast is not encouraging. This year’s water pressure is more severe than in 2020, and frost has exacerbated the situation,” he said.

The government intends to allocate 1.32 billion reais (250 million U.S. dollars) to support coffee growers who have suffered crop losses due to frost.

But Pereira’s farm produces specialty beans for export, and he is worried about the future. “Except for producing coffee, I have never done anything in my life,” he said.

Additional report by Carolina Pulice in Sao Paulo

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