Vaivém: Agricultural production is more expensive this year, but there is still profit

The year 2022 is being quite different from the previous ones. Producing became much more expensive, but the profits did not stop coming to a large part of Brazilian agricultural activities.

Adverse weather events, which affected the different productive regions of the country differently, and external effects, which brought a strong acceleration in the prices of inputs, are being the main challenges for the field.

The costs came from fertilizers, agrochemicals, diesel, electricity, animal feed and, for some activities such as coffee, also from labor.

The still high external demand and the difficulties in replenishing world grain stocks, mainly due to geopolitical issues involving Russia and Ukraine, kept commodity prices high.

Major suppliers of grains and vegetable oils to the international market, Ukraine and Russia helped to keep prices warm, but the war between them caused a sharp acceleration in production costs, due to Russia’s importance in the supply of fertilizers.

The coming year will be no less challenging. Production costs remain high, and the global recession affects demand for various agribusiness products.

Regarding prices for domestic products, the expectation is for a downward adjustment in the international market, but without major changes because inventories are still being replenished.

To assess the scenario experienced by the Brazilian producer this year and the prospects for 2023, the Campo Futuro Project, a partnership of the Cenar/CNA System with university departments such as USP, Federal de Viçosa and Federal de Lavras, researched 11 agricultural activities in 116 municipalities in 21 states.

Among the cost increases, fertilizers are the leader, which participated with a much higher percentage this year in the COE (Effective Operating Cost).

In this clash of costs, prices and revenues, products that have advantages gain more space. This is the case of soybeans and corn, which have been occupying larger areas.

Soybean had an effective operating cost 35% higher this year, with a drop of 8.3% in gross revenue, compared to 2020/21, when the cost was lower and revenue was higher.

The average price of soybeans increased by 38%; and average gross revenue, despite the drop in productivity, rose 17.8%. Of the 26 regions surveyed, only two had negative gross and net margins.

For the next year, the positive points for soybeans are the continuity of demand, below-average inventories and high vegetable oils. The downside could come from an economic slowdown.

The corn crop had an average cost increase of 31.1% in the summer crop and 56.7% in the winter crop. Gross revenue fell by 7%.

For 2023, the uncertainties come from possible weather effects, doubts about the export agreement between Russia and Ukraine and international demand.

Coffee prices rose 42% in the 2021/22 crop, but costs rose 63%. Fertilizers accounted for 35% of effective operating costs, while labor accounted for 28%.

In 2023, the drop in world stocks may give sustainability to prices, but there is a recovery in production in some countries. Higher costs and demands from Europe and the US will define revenues.

In the case of swine, only 36% of the regions surveyed showed a net margin this year. The hopes are good sales at the end of the year and an increase in the purchasing power of consumers.

The poultry industry could not afford the fixed costs, causing losses in the sector. For this end of the year, an increase in exports and a smaller domestic supply are expected.

Rice, which loses space in the sown area, had an increase of 20.3% in effective operating costs and a drop of 19% in gross revenues. With the same trend, the bean crop went through a 31.3% increase in costs in the first two harvests, but had a 44.5% decrease in gross revenue.

Revenues from livestock breeding and fattening fell by 9.7% in the last 12 months, while 5 of the 12 regions surveyed with dairy activity had negative net margins.

Wheat, with a record harvest and rising prices, had a positive gross margin in all regions evaluated by the Campo Futuro Project. However, the average cost of production, up 34%, inhibited the net increase in revenues.