Oct 28, 2014

Brazilians Reelect President Rousseff for Second Term

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

In the most hotly contested presidential election in memory, President Dilma Rousseff was reelected with 51.4% of the votes over her opponent Aecio Neves with 48.5%. Her narrow victory was secured by an overwhelming majority of poor Brazilians who see her social spending programs as a major help in the lives. Rousseff won handily in the impoverished northeastern part of Brazil while Neves won in the more prosperous south. Most of the big agricultural states voted for Neves.

President Rousseff's agricultural policy is not expected to change with her reelection, but farmers could be helped though by a weakening Brazilian currency. The Brazilian currency fluctuated widely during the campaign depending on the latest poll numbers, but it weakened significantly last week when Dilma took a narrow lead in the polls. Now that her reelection has been secured, the currency has weakened even more and it ended Monday trading at 2.52 to the dollar.

A weaker currency is good news for Brazilian farmers, at least in the near term. Farmers purchased their inputs for the current crops when the exchange rate was approximately 2.2 to the dollar and now they will sell their grain at an exchange rate of 2.5 to the dollar or more. Since soybean and corn prices are set in dollars but paid in the local currency, the weaker the currency is compared to the dollar, the more money Brazilian farmers put into their pockets every time they sell a sack of soybeans. A weaker currency also makes Brazilian products more competitive in the world market.

A weak currency also makes imports more expensive and that is going to be important to Brazilian farmers as soon as they must purchase more expensive imported fertilizers and chemicals. The cost of producing soybeans and corn is certain to increase next growing season if the Brazilian currency continues to weaken.

When Rousseff completes her second term, the Workers Party will have been in power in Brazil for 16 years (eight years of Lula and eight years of Dilma) and there is already talk of Lula running for his third term in 2018. The Brazilian constitution bared him from three consecutive terms, but there is no restriction on trying for a third term if it is not consecutive.