Commodities Shuttle: Agricultural prices start to fall, but consumer still doesn’t have relief

World food prices have retracted in the last three months, according to FAO. This movement, however, still does not indicate relief to consumers, punished by a worldwide wave of inflation.

Even with the fall, food products ended the first half of this year with an average high of 23%, compared to the level of June last year. In some cases, such as wheat, the imbalance between supply and demand made the product rise 48%.

The moment is one of price volatility, since there were no structural changes in scenarios, according to analysts at Itaú BBA. For most commodities, there was already a perspective of cooling, due to higher production forecast for 2022/23. Exceptions are for wheat and corn.

A fall in commodity prices, in a period in which costs have been registering strong acceleration, worries producers. For Rabobank analysts, however, the prospects are still good margins. The producer will, however, have to manage his costs and sales well.

The new fertilizer prices have carried a cost of 50% to 70% for soy producers. Agricultural pesticides increased by 25% over the previous crop.

Operating costs for soybean producers, the main product of Brazilian crops, are expected to exceed those of the 2021/22 crop by 50%.

One of the great fears was the supply of fertilizers, but purchases in the first half of the year are already 14% higher than those for the same period in 2021, according to Itaú BBA. With purchases already made in the first half of the year, plus carry-over stocks, the country needs to import another 20.5 million tons in the second half of the year to reach the volume of fertilizer delivered in 2021.

This import target was possible due to Canada’s greater presence in the Brazilian market. According to the bank, Canadians supplied 9% of the fertilizer imported by Brazil from January to June 2021. This year, it was 13%. Russia lost participation.

Commodity prices will also depend on the behavior of the world economy. If there is a recession, food will not go unscathed, but will be less affected than other products, according to analysts at Itaú BBA.

Internally, the producer maintains confidence in prices and profitability. For Rabobank, the soybean area should increase by 4.5% in the 2022/23 harvest, compared to the previous one, which, according to Conab (National Supply Company), stood at 41 million hectares.

Always accustomed to record numbers, producers had a decline of 12 million tons in production this year, to 126 million, and exports are expected to fall by 10 million, to 77 million. Internal crushing, however, will be a record, reaching 48.8 million tons, according to Rabobank.

For corn, the bank predicts less heated prices than those preceding the off-season. The production of the second crop will allow for a replenishment of local stocks.

The resumption of Brazilian exports, which should reach 42 million tons this season, will put final stocks under more pressure. The heated demand will interfere with final stocks and cereal prices.

The beef sector is heading towards a new record, due to demand from China, the United States, Egypt and the United Arab Emirates. Brazilian shipments are expected to increase by 10%, according to Rabobank.

For FAO, the protein sector maintains record prices due to demand and reduced supply in some of the important producers, affected by geopolitical problems or diseases, such as avian flu. On average, the price of meat is 13% higher than a year ago.

Some products, such as cotton, have a challenging scenario, according to Rabobank. They depend on the income of the population, which is being affected by inflation, high interest rates and a slower pace of the economy.

The scenario is also challenging for dairy farmers, who have high costs and depend on an evolving economy to increase sales.

According to FAO, this is a sector with reduced supply and rising prices. In the last 12 months, the world average price increase was 30%.

In São Paulo, milk had a high of 37% in the last 12 months for the consumer, according to data from this Monday (11) from Fipe (Economic Research Institute Foundation).

Despite the high costs, producers still have room for profit margins, given commodity prices. In a year of challenges like this, however, attention should be redoubled, according to analysts at both banks.