Sep 02, 2015

Brazil's Ag Exports Surge to 47% of Total, Industrial Exports Lag

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

While the news out of Brazil in recent months has been mostly about the faltering economy and the devaluation of the Brazilian currency, the news concerning the agricultural sector is not nearly as pessimistic. In fact, the devaluation of the Brazilian currency makes Brazil's commodity exports more competitive in the world markets.

During much of the last fifteen years the Brazilian currency strengthen compared to the U.S. dollar and in 2011 it was nearly equal to the value of the dollar. The strong currency at the time made Brazilian products more expensive abroad. But over the last few years, the tide has turned and the currency has been steadily weakening. Since the first of the year, the Brazilian real has devalued approximately 30% reaching 3.64 to the dollar thus making Brazilian commodities more competitive.

In the year 2000, commodities such as iron ore and soybeans represented 22% of Brazil's exports while industrial products such as airplanes and automobiles represented 59% of Brazil's exports. Today, it is very different. Last week Tatiana Palermo, who is an undersecretary from the Ministry of Agriculture, testified at a Congressional hearing that during the first seven months of 2015, commodities representing 47% of the total exports and manufactured goods representing 35%. In 2014, commodities represented 44% of Brazil's total exports.

According to Palermo, Brazil accounted for 1.2% of the total global commerce in 2014, while in the agricultural sector, Brazil accounted for 7% of the total and 8% of the total in 2013. In 2000, iron ore was the leading commodity export from Brazil accounting for 5.5% of the total. Soybeans are now the leading export accounting for 14% of the total during the first seven months of 2015.

The big increase in commodity exports has been due in large part to the emergence of China as an industrial powerhouse. In the year 2000, China occupied the 12th position as a destination for Brazilian exports. Today, China is the number one destination for Brazilian exports and well ahead of second place United States. Looking at just agricultural exports, China is number one followed by the European Union, Russia, United States, and Japan. These five markets represent approximately half of the world's agricultural imports.

During her testimony before the Brazilian Congress, Palermo also expressed confidence that efforts by the Brazilian government to open up additional markets for Brazilian products is proving successful. Recently the United States approved the importation of fresh beef from Brazil and Canada is expected to do the same by the end of the year. The Secretary is confident that South Korea will open its borders to Brazilian pork and Saudi Aribia will open up to Brazilian poultry. While there have been successes, it is an ongoing battle to keep the markets open in light of disease scares and protectionists policies in importing countries.

In Brazil, Mato Grosso is the largest agricultural exporting state followed by Sao Paulo, Parana, Rio Grande do Sul, and Minas Gerais. In Mato Grosso, virtually 100% of the exports are agricultural commodities including soybeans, soybean meal, corn, cotton and meats.

Other potentially large markets are becoming more accessible for Brazilian exports. In the year 2000, India was in 44th position as a destination for Brazilian exports, while in 2015, India is leaped to 8th position just behind Chile.