It is impossible to talk about pros and cons in the face of a war. There are only “cons”, and for Brazilian agribusiness they are multiplying with the escalation of tensions between Russia and Ukraine.
An immediate reflection of this escalation, grains prices soared on the international market. It is true that Brazil is a major exporter of soybeans and corn and can even benefit from the increases in prices of both commodities, but the country is also one of the largest importers of wheat, with prices rising the most.
Among the “soft commodities”, sugar and cotton, which are directly influenced by oil prices, are also on the rise and the curve may favor Brazilian exporters. But prices of coffee, cocoa and orange juice, equally important for the country, are falling.
In common to all agricultural products, fertilizers, which are already much more expensive since last year, will certainly increase even more, and with the expectation of increasing sanctions on Russia, one of the main exporting countries of the input in the world, the supply scenario is bleak.
It is always good to remember that, despite being the largest net exporter of agricultural products in the world, Brazil imports around 80% of the fertilizers used in crops. So, if rural producers manage to buy everything you need in the market this year without Russia — and without Belarus, also an important supplier, which is no longer able to sell because of U.S. and EU sanctions —they will have to pay much more for input.
The result of this equation points to increases in the prices of basic grains for human and animal food and sugar, essential even for the poorest population, could be more inflation. The calculation also takes into account the effects on production costs and prices of cheaper proteins such as chicken meat and eggs.
Russia and Ukraine are, respectively, the first and third largest wheat exporting countries in the world, behind only the European Union. So far, the U.S. Department of Agriculture (USDA) estimates that, together, they would ship 59 million tonnes in this 2021/22 season, almost a third of the total forecast. According to the USDA, the two countries would also be responsible for shipments of 38 million tonnes of corn, or 20% of the total volume.
In the case of fertilizers, Russia leads global exports of nutrients derived from nitrogen, is the second largest country in shipments of potassium products and the third in phosphates. The country recently suspended shipments for two months, but the flow was expected to resume by the beginning of April, which is now pending. In the fourth quarter of 2021, urea, for example, was already 245% more expensive than a year earlier.
As already reported by Valor, the import of fertilizers is at the base of the commercial relationship between Brazil and Russia. In 2021, Brazil imported 3.6 million tonnes of Russian potassium chloride ($1.3 billion). Another $1.2 billion was spent on the purchase of urea (1.3 million tonnes), ammonium nitrate (1.4 million tonnes), nitrogen, phosphorus and potassium (967,000), according to data from Comex Stat, database maintained by the Economy Ministry.
Brazil also imports agricultural products such as malt (157,300 tonnes) from Russia. The volume of wheat is small (28,000 tonnes), because in this case the bulk of purchases come from Argentina.
On the other hand, imports of products from Ukraine are not very relevant. Among the agricultural items imported by Brazil, the list contains cigarettes, frozen fruits and oats, with deals of $2 million last year.
Brazilian exports to both countries are based on agricultural products. For Ukraine, the relevance is also small. Sales are led by peanuts, with 22,200 tonnes for $29.2 million in 2021. The beef industry exported 4,600 tonnes last year, 13% more than the previous year. The values advanced 34% compared to 2020, to $15.4 million.
Sugar, soluble coffee, soy, tobacco, beef tripe, pepper and chicken meat are also on the list. In all, the sale of agricultural products to Ukraine amounted to $148.2 million in 2021.
Shipments to Russia are more significant. They include 768,200 tonnes of soybeans in 2021, or $343.2 million. The commodity is the main product exported to the Russians. Among the proteins, the highlight is the chicken meat. Last year, 105,800 tonnes were shipped, or $167.1 million.
The basket of main Brazilian agribusiness products exported to Russia also includes coffee, peanuts and sugar. Beef comes next, with 35,300 tonnes sold and revenues of $137.6 million. Brazil also resumed exporting pork (9,200 tonnes), after spending 2020 without exports, and 458 tonnes of horse meat were also shipped to Russia in 2021. Revenue from shipments exceeded $1.2 million.
Source: Valor International