The Real’s 7% DoD plunge against the dollar after an alleged bribery scandal wounded President Michel Temer on Thursday has been keenly felt by Brazilian commodity sellers. Soybean and ethanol producers have been among those worse affected. Brazilian B-Grade ethanol export prices were already down 4% DoD in dollar terms on Friday to 490USD/m3, with Brazilian soybean prices at the Paranagua export hub falling by the same amount to hit 350.80USD/t, the lowest level seen this month.
The scandal looked set to deepen over the weekend, jeopardising a 3.6% bounce back in the value of the Brazilian currency on Friday. Brazilian bar association the Brazilian Order of Lawyers on Sunday voted 25-to-1 in favour of impeaching the President in Brazil’s lower house, increasing the chance of a quick change of presidential office or fresh elections, slicing another 1% from the Real versus the dollar at Monday’s open.
As long as there is no clarity regarding the future of the current administration, investors’ fear a return to office of Brazil’s Workers’ Party (PT) is likely to continue to drag on the Brazilian currency, putting further downward pressure on international ethanol and agricultural commodity markets.
Brazilian ethanol producers have already cut their prices (see PRIMA Weekly International Ethanol Report), increasing Brazil’s share of recapturing international market share after a dismal few months. Brazilian soybean farmers’ look likely to scramble to offload output from this year’s record-breaking harvest after previously holding out in hope that the market’s modest bounce back from April lows would continue (see PRIMA Weekly International Vegetable Oils Report). Chinese buyers are set to be the main winners of the currency collapse as late season US sales face stiffer Souther American competition.
JFS/MS – 22/05/2017