São Paulo – The increase in global commodity prices should provide incentives to investment in the interior of Brazil and, consequently, to greater production. This should take place due to the greater capitalisation of Brazilian agribusiness when the major export and crop payment periods begin, early next year. This statement was made by Steve Cachia, commodity analyst at Cerealpar, a grain dealer.
"Brazil, a great producer and exporter, should be stimulated to produce more and continue supplying buyers, like the Arab nations," said Cachia, regarding the greater availability of agricultural products that Brazil may export, due to the growth in commodity prices. The agricultural products in which this expansion is more apparent are the soy complex, as well as cotton and sugar.
"Sugar is at its highest price in the last thirty years. Cotton is at its highest price in history," said Cachia. Most of the commodities, among them soy and its products, are returning to the same levels as they were in 2008, prior to the global economic crisis. At the time, there was the beginning of a “boom” in commodities, with investors turning capital to the sector and granting it greater liquidity, a tendency that receded with the crisis.
"Now, with the calm in the global economy, money is returning to this market," said Cachia. Investment in papers connected to commodities ended up boosting the prices of the products. Added to that, there is the greater demand, mainly Chinese, and the reduction of offer due to crop problems in several countries. These movements of expansion in prices started mainly in July this year, according to the analyst, with the announcement of a lower wheat crop in the former Soviet Union.
And the tendency for higher prices, if supply and demand is taken into consideration, should continue. This is due to the fact that South America, for example, one of the great commodity producer regions, mainly agricultural, should suffer with the La Niña phenomenon in 2011, causing droughts in producer regions. That is, there may be problems in supply and prices should remain high. The United States has also announced a lower soy crop than expected. "We have no more space for crop reductions," said Cachia.
Another factor of importance, however, to maintain prices high or not, is the performance of developed economies. An improvement may raise prices, due to greater availability of money on the market. But analysts do not have very positive forecasts regarding the recovery of the European and North American economies. "I spend a few months in Brazil and a few months in Europe. The climate of euphoria is only present in Brazil and China," said Cachia.
While prices are injecting money into the field in Brazil, favouring and providing incentives to sectors connected to agribusiness – like production of machinery -, they are weighing heavily on the purchases of urban consumers. It is expected that the higher prices should result in slight inflation, not just in Brazil, but also in other countries.
*Translated by Mark Ament
