Brazil has a lot to lose from a potential escalation of geopolitical tensions in Eastern Europe. Two major players in world commodity markets, Russia and Ukraine, play a major role in corn, wheat and fertilizer exports.
Russians lead individual wheat exports, with 35 million tonnes per year. They are only behind the European Union bloc, which totals 37.5 million.
Ukraine, a country that has been rapidly developing grain production, is the world’s third-largest corn exporter, after the United States and Argentina.
The corn crop of Ukrainians already reaches 42 million tons, well up from 10 million a decade ago.
Together, Russia and Ukraine are responsible for 28% of the world’s wheat exports and 20% of corn exports.
An invasion of Ukraine by Russia would further push up world prices for agricultural commodities, already pressured by rising production costs, drought and crop failure in several regions.
The increase in corn could even benefit producers, since, if the off-season occurs normally, Brazil will have export potential of 35 million tons.
The international increase in wheat, however, would sustain domestic prices at high levels and bring new costs to consumers, since Brazil is one of the world’s largest importers of this cereal.
International markets are already reacting to tensions in Eastern Europe. The main importers, to guarantee domestic supply, increased purchases, and prices rose in all export markets.
In Canada, one of the important players in the foreign market, the ton of wheat has already reached US$ 405, US$ 22 more than in January.
The Brazilian market would not support new domestic price increases. The ton of wheat is at R$ 1,707 in Paraná, with an accumulated increase of 78%, compared to February 2020. In the same period, the sack of corn rose 87%, reaching R$ 97 in the region of Campinas (SP).
The big problem for Brazilian agribusiness, if the Russian invasion of Ukrainian territory really takes place, will be the increase in production costs, coming mainly from fertilizers.
These have returned to the highs of a decade ago, due to tensions in Belarus and the interruption or reduction of production in some countries.
Brazil imported 41.6 million tons of fertilizers last year, and 22.4% of that volume came from Russia. In terms of values, total national purchases totaled US$ 15.2 billion, with spending of US$ 3.53 billion in the Russian market.
Brazil is also very dependent on potash imports from Belarus, another country that is under sanctions from the great powers.
China, the second largest supplier of fertilizers to Brazil, participated with 15.2% in the supply of these inputs last year.
Russian fertilizer supplies might not be interrupted, but sanctions imposed by the United States and the European Union would make international supplies more expensive and difficult.
Brazil’s trade with Ukraine is of little importance to Brazilian agribusiness, unlike Russia’s. Brazilian soy exports to the Russians totaled US$ 473 million last year; and meat, US$ 321 million. Coffee and sugar also top the list of Russian imports into the country.
The conflict between Russia and Ukraine has effects on energy, metal and agricultural commodities, which would further increase inflationary pressure in the world, currently at the highest levels in ten years.
Trade insecurity would further affect the recovery of the world economy, skating since the beginning of the pandemic.
China would be one of the beneficiaries of this increase in tension. World leader in exports of some types of fertilizer and wheat, the Russians would have the Chinese market to spawn part of these products, and with more competitive prices for the Chinese.
According to USDA (United States Department of Agriculture), Russia’s annual wheat production is 75.5 million, with exports of 35 million. Ukraine produces 33 million and ex-port 24 million.
In terms of corn, Ukraine’s importance in the international market is much greater than that of Russia. Ukrainians produce 42 million tons and export 33.5 million.
