Despite the impeachment of Brazil’s president this week, the country’s weather, not its politics, remains the driving force for agricultural commodities right now.
“Politics did not drive soybeans up $2,” explains Don Roose of U.S. Commodities.
“Brazil’s corn crops are shrinking and will continue to shrink,” says Michael Cordonnier, of the Soybean and Corn Advisor. “There could be a washout of corn by the second half of this year.”
That’s good news for American farmers.
“Brazil is our number-one competitor. This means we can export more to the world,” Cordonnier says.
With the start of the dry season underway, and a rainy season that ended three months early, Brazil’s corn crop is already down 7 MMT to 78MMT and is expected to fall further, according to Cordonnier.
Soybean production also has dropped by 3% to 97.5 MMT because of the drought, Cordonnier says. Brazilian meteorologists blame the shift from El Nino to La Nina for the drought-stricken corn situation.
Still, in the middle of the challenging weather, the South American country is also dealing with a political crisis.
Brazil’s Senate voted Thursday to suspend Dilma Rousseff, 68, Brazil's first woman president, and start her impeachment trial. The move promoted her business-friendly vice president Michel Temer, 75, to interim president, ending 13 years of Workers Party rule in Brazil.
The country faces daunting problems, with projected zero GDP for next year, inflation, rising unemployment, and port and road infrastructure problems. The drop in prices for the commodities that fuel Brazil’s economy and sparked discontent is still an issue, according to Cordonnier.
There also is a lot of uncertainty, with a looming impeachment trial for the former president and the elevation of a deeply unpopular vice president to the presidential spot.
There have already been some changes to the cabinet, with Blairo Maggi taking over as Brazil’s agriculture minister.
That might not be a plus for American farmers. “Maggi knows the world market,” Roose says. “With or without currency problems, Brazil will probably have an advantage over us.”
Brazil raises the same amount of soybeans as the U.S., and Roose expects Brazil’s farmers, now winding down the harvest, to plant 3% to 5% more soybeans, thanks to newly higher prices. The recent soybean rally “opened up production,” Roose notes.