The completion of the war between Russia and Ukraine has destabilized agricultural markets, which will have major consequences for inflation in the world and in Brazil.
Wheat, one of the most sensitive products in this conflict, due to the importance of these two Eastern European countries in the international market, reached US$ 9.26 per bushel (27.2 kg) at the opening of this Thursday (24) on the Chicago, up 5.7% from the previous day’s close.
Since Thursday (17), when tensions increased, the cereal already accumulates a high of 17.4%. This will cost dearly for Brazil, which will import 6.5 million tons of the cereal this year. The country is one of the largest wheat importers in the world.
Corn rose to $7.19 a bushel (25.4 kg), up 5.1% from Wednesday. The consequences of this increase also greatly affect Brazil, both in the food and fuel sectors.
The country gains in exports, but the failure of the first crop, due to the drought, keeps corn prices high internally. This new price level increases the cost of protein production, pressure that will reach the consumer’s pocket.
Corn is also gaining importance in fuel production. With oil reaching US$ 105 per barrel, the cereal may gain preference in the composition of the energy matrix. In Brazil, the cereal is already responsible for 10% of ethanol production.
This imbroglio is not just from Brazil. The United States allocates a third of corn production to ethanol production, while India and China are increasing the share of renewable fuels in the energy mix.
The pressure will also come from soybeans, which opened the market this Thursday (24) at US$ 17.65 per bushel (27.2 kg), up 5.4%. The weight of this increase will not only be on food, but also on fuel. Cooking oil, one of the main highs of inflation indices in the last two years, will rise again. Biodiesel, an alternative to high oil, has 70% soybean oil in its composition.
The agricultural sector, which was already affected by climate crises in South America and in Mediterranean countries, grain-producing regions, will now feel the effects of difficulties in commercial transactions, due to sanctions and barriers between countries.
For the Brazilian producer, this war takes place at a delicate moment. After several years of good liquidity margins, production costs have accelerated and are among the highest in ten years.
The pandemic has disrupted part of China’s chemical industrial park, a major supplier of agrochemicals used in Brazilian crops. Prices have risen and there is a lack of some inputs in the market.
Fertilizers have also been affected by the pandemic and, more recently, geopolitical sanctions placed by major powers on major producers such as Belarus.
The current conflict takes place in the main fertilizer supplier region for Brazil. In 2021, the Russians were responsible for 22% of the 41.7 million tons imported by Brazilians.
Brazil sought 9.3 million tons of this input from Russia, which became the main supplier. In addition to the difficulty of supply, due to sanctions on maritime operations, the price will now be higher.
The Brazilian producer, who experienced the boom of the high dollar — the US currency raises export revenues in reais —, will now pay even more for diesel, one of the major cost components in crops. The dollar that raised revenues now raises costs.
The rise in the US currency, which already reached 2.7% in the morning and was quoted at R$5.14, will put new pressure on food prices, raising inflation.
Russia and Ukraine have great importance in grain production. The Russians produce 76 million tons of wheat and export 33 million. Together, the two countries are responsible for 29% of the world’s wheat trade.
Ukraine produces 42 million tons of maize and exports 36.5 million. Ukrainians and Russians hold 19.5% of the corn traded in the world.
