El Niño again lowers grain harvest forecast

Grain production is now expected to total 299.7 million tonnes, 20 million tonnes less than in the 2022/23 cycle

02/12/2024

The weather didn’t help, and as producers are already seeing in the fields, the 2023/24 grain crop will be smaller than originally expected. On Thursday, the National Supply Company (CONAB) again lowered its production estimate, mainly due to losses in soybeans and corn. The grain harvest is now expected to total 299.7 million tonnes, 2.2% less than the January forecast and 6.3% less than the 2022/23 harvest. That’s 20 million tonnes less between one crop and the next.

“The delay in the start of the rains in the Central-West, Southeast, and Matopiba regions, followed by irregular and poorly distributed rains, with records of summer rains lasting more than 20 days, as well as high temperatures, are having a negative impact on crop performance,” said CONAB in its 5th Crop Survey report.

The lack of rain and the high temperatures due to the El Niño climate pattern have damaged the soybean and corn crops of the first harvest since planting. Soybean planting has been delayed, which should also affect the second corn crop, according to CONAB.

Soybean production, the flagship of Brazil’s agribusiness, is now expected to be 149.4 million tonnes, 3.4% less than the previous harvest. Compared to the initial forecast of 162 million tonnes, this represents a 7.8% decline. Production of less than 150 million tonnes had already been expected by market analysts.

For corn, CONAB estimated total production at 113.7 million tonnes, 13.8% less than in the 2022/23 cycle. This figure includes three crops. “The first crop, which accounts for 20.8% of total production, faced adverse situations such as high rainfall in the south of the country and low rainfall in the Central West, accompanied by high temperatures,” CONAB noted.

The bean crop estimate fell slightly, but was still close to 3 million tonnes, taking into account the three harvests. In rice, although El Niño initially affected the crop, no losses are expected for the time being. CONAB estimated production at 10.8 million tonnes, 7.6% higher than the 2022/23 crop.

CONAB’s survey was not all negative. The country is expected to see a new record in cotton production, with 3.3 million tonnes of lint. According to the agency, the price and marketing prospects have stimulated an increase in plantings, which grew by 12.8% over the 2022/23 crop.

On Thursday, CONAB also released its first estimate for the winter crop, forecasting a harvest of 10.2 million tonnes of wheat. This figure is 26% higher than the 2022/23 crop. Planting begins this month in the Central-West and will gain momentum in mid-April in Paraná and in May in Rio Grande do Sul, states that account for 82.7% of the country’s wheat production.

With the updated soybean production estimate, CONAB also lowered its export forecast for this crop by 4.29 million tonnes to 94.16 million. Corn shipments were also lowered by 3 million tonnes. As a result, they should total 32 million tonnes.

On Thursday, the Brazilian Institute of Geography and Statistics (IBGE) also released a lower estimate for the 2024 grain harvest, but the drop wasn’t as significant as CONAB’s. The agency lowered its estimate by 1% to 94.5 million tonnes. The agency lowered its estimate by 1% to 303.4 million tonnes. Compared to last season, this represents a decline of 3.8%.

Contrary to Brazilian estimates, the U.S. Department of Agriculture (USDA) on Thursday projected a still robust soybean crop in Brazil for the 2023/24 crop year in its monthly World Agricultural Supply and Demand Estimates report. The agency’s forecast calls for production of 156 million tonnes, 1 million tonnes less than the January forecast.

Analysts had expected a more aggressive cut from the USDA of at least 3 million tonnes. Nonetheless, March soybean contracts on the Chicago exchange closed up a modest 0.38% at $11.9350 per bushel.

For Ronaldo Fernandes, an analyst at Royal Rural, the USDA failed to take into account the fact that 2023 was the hottest year on record and that soybeans developed under such conditions. “There is no productivity or acreage to justify a 156-million-tonne crop. Given that, the market knows that soybean production is much more likely to be below 150 million than above that volume,” he said.

(Paulo Santos and Rafael Rosas contributed reporting.)

*Por Fernanda Pressinott — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Who is Eataly’s new owner and how much it paid for the business

Fund made up of more than 60 individuals is now calling the shots

02/12/2024

The fund paid R$15 million for the asset and took on a debt of R$45 million — Foto: Silvia Costanti/Valor

The fund paid R$15 million for the asset and took on a debt of R$45 million — Foto: Silvia Costanti/Valor

SouthRock asset manager took Eataly out of the court-supervised reorganization process at the end of last year and has now decided on the sale of the business. Pipeline, Valor’s business website, learned that the Wings fund has taken over the operation and is now renegotiating with suppliers and other creditors.

As it was reported by the website when conversations began, the fund is comprised of just over 60 individuals, including physicians, advertisers, and accountants, and now also a multi-family office. With no experience in the food industry, Wings investors brought to Eataly’s management Marcos Calazans, an executive who had previously tried to acquire the asset.

Panza&Co, then the owner of Café Suplicy, Fifties and P.F. Chang’s, submitted the acquisition of Eataly to antitrust regulator CADE in February 2022, but was overrun by SouthRock in the final stretch, while it was structuring the transaction. In August of that year, SouthRock’s CEO Ken Pope announced the acquisition. (Due to the pandemic, Panza&Co closed the other brands’ operations.)

Mr. Calazans took over as the CEO of the operation, which was then held by Luis Felipe Campos. The negotiations around the sale were carried out by SouthRock’s CFO, partner Fabio Rohr—Mr. Pope did not participate in the conversations, even though he signed all the paperwork, according to a person familiar with the matter.

The fund paid R$15 million for the asset and took on a debt of R$45 million. The size of the debt is impressive, considering that it is only store in Brazil. But, according to sources, only around R$15 million refers directly to the operation, as its inventory.

The total amount also includes outstanding taxes and royalty payments to the Italian parent company, which the new owners must renegotiate. Bank loans, with institutions such as Pine and Santander, have already been paid off. A source close to the fund says there is a lot of work to be done to recover and expand the store, but that there are issues, and several initiatives have been identified for the action plan.

One of the obstacles that the new owners will have to overcome is that the company has filed for bankruptcy, as reported by Valor. According to a source close to the fund, Winebrands is one of the smallest creditors among beverage suppliers, with around R$80,000—Mistral, for example, would have R$500,000—, but an agreement is expected. However, Winebrands states in the documents that Eataly has 634 notarial protests and recent debts with suppliers alone totaling R$8 million.

At the end of 2022, there was also a change in Eataly’s headquarters. European private equity fund Investindustrial bought control of the operation from founders, the Farinetti family.

In Brazil, the sale by SouthRock was signed before the approval of the court-supervised reorganization of the controlling company and other companies in the group. Although Eataly was not part of the process, the bankruptcy trustee defined, after approval, that the companies under reorganization could not sell shares.

The main asset in SouthRock’s reorganization process are the Starbucks stores—the U.S. brand has terminated its contract, but open units continue to carry the brand’s name.

The original story in Portuguese was first published on Valor’s business news website Pipeline.

*Por Maria Luíza Filgueiras, Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

January higher-than-expected inflation doesn’t change outlook

Rise in service prices gains attention but shouldn’t affect monetary easing

09/02/2024

Carla Argenta — Foto: Claudio Belli/Valor

Carla Argenta — Foto: Claudio Belli/Valor

Brazil’s official inflation, measured by the Broad National Consumer Price Index (IPCA), was higher than analysts expected in January but did not change the scenario of prices slowing down this year.

The indicator opened 2024 with a rise of 0.42%, according to the Brazilian Institute of Geography and Statistics (IBGE). The rate exceeded the median captured by Valor Data, which had predicted a rise of 0.36%. In January 2023, the rate was 0.53%.

The increase surprised some economists, who expressed concerns about the possibility of the heated labor market pressuring inflation in the services sector. However, experts emphasize that the result will not prompt revisions to estimates that suggest the continuation of the disinflationary process. In the 12 months leading to January, the IPCA increased by 4.51%, compared to 4.62% in December.

“The magnitude of the [monthly] increase is out of line with expectations and can be alarming if you look at the composition without considering seasonality,” said Carla Argenta, chief economist at CM Capital.

She cites the food and beverage inflation of 1.38% as an example. Although this was the highest increase for this group since April 2022 (2.06%), the figure was less impacted than expected by the El Niño weather pattern. “El Niño’s effect is on a subgroup that primarily includes rice and beans, as well as fruits and vegetables. But while it has driven up food inflation at home [1.81%], it doesn’t seem to be a concern for the coming months. The effects were mostly felt last year.”

Sicredi’s chief economist, André Nunes de Nunes, reiterated that the impact of climatic events in November and December 2023 may have begun to dissipate, favoring the January 2024 result of the food group—the 1.38% increase was below the projection of 1.55%. Food at home was also below the expectations of Sicredi’s economic team, which had anticipated a rise of 1.99%.

Laiz Carvalho, an economist for Brazil at BNP Paribas, points out that the higher-than-expected IPCA in January doesn’t change the outlook. “We still think that this year’s IPCA will close at 3.5%. It will be largely driven by goods and food at home in the next few observations. We’re already seeing a reversal of these increases in other indices.”

The 0.65% drop in transportation costs also helped economists maintain the scenario. After successive rises since September 2023, the price of airline tickets fell by 15.22%. Fuel prices also decreased by 0.39% in January compared to December.

However, the main point of attention for the disinflationary process, according to Itaú Unibanco economist Luciana Rabelo, is services inflation, especially those most pressured by labor adjustments. Core services inflation rose by 0.76%.

“It’s a little worrying, especially if the services sector comes under more pressure over the year due to the heated labor market,” she said. On the other hand, she comments that the rise seen in January “was already accounted for” and does not impact the bank’s projection that the IPCA will be 3.6% at the end of 2024.

Julio Hegedus, chief economist at Mirae Asset, also points to services inflation as an element that should be closely monitored in the upcoming measurements. “We have to keep an eye on the food and drink, personal expenses, and services groups. The economy is heating up in low-income services. It’s going to be an impact factor,” he said. “There may be some demand pressure over the year, not least because the diffusion data remains high.” The diffusion index, which measures the proportion of goods and activities that have increased in price, stayed at 65.3% last month, the same as in December.

Despite the warning, there is a consensus among economists that none of the data released Thursday by the IBGE will create obstacles to the continuation of the interest rate cut cycle by the Central Bank.

“The result for underlying services in January is not something to worry about. We need to see if the movement will be repeated over the next few months,” said the chief economist at CM Capital. “At the moment, it has absolutely nothing to do with monetary policy. Inflationary inertia is proving to be increasingly smaller, and the impact on adjustments to regulated prices has also been lower. What made it different were seasonal issues that should be reversed soon,” said Ms. Argenta, who expects successive cuts of 50 basis points in the Selic policy rate until the interest rate falls to 8.5% by the end of 2024.

*Por Rafael Vazquez, Rafael Rosas, Luiz Fernando Figliagi, Ívina Garcia — São Paulo, Rio and Manaus

Source: Valor International

https://valorinternational.globo.com/
/by

In Paraguay, Brazilian ministers reject Itaipu tariff hike

Ministers Alexandre Silveira (Mines and Energy) and Mauro Vieira (Foreign Affairs) traveled to Asunción to discuss with local leaders

02/07/2024

Alexandre Silveira — Foto: Marcelo Camargo/Agência Brasil

Alexandre Silveira — Foto: Marcelo Camargo/Agência Brasil

The Brazilian government informed Paraguayan officials on Monday (5) that it will not increase the tariff for electricity produced at the Itaipu Binacional hydroelectric power plant. Energy Minister Alexandre Silveira and Foreign Minister Mauro Vieira had traveled to Asunción to discuss the matter with local leaders.

As Valor learned, the argument expressed to the neighboring leaders is that the Lula administration is concerned about the effects of a possible tariff hike on the electricity bills for the neediest population in Brazil. Messrs. Silveira and Vieira also pointed out that higher power costs could harm the industrial activity and Brazil’s economic development.

The tug of war over tariffs led the president of Paraguay, Santiago Peña, to Brasília two weeks ago for a face-to-face meeting with President Lula. At that time, the Brazilian leader became upset with his aides for failing to provide sufficient information on the matter.

At first, the Brazilian president acknowledged that the two countries had differences regarding the tariff, but promised to negotiate a solution. Shortly after, the government tightened its stance and showed signs that it would not agree with the price hike.

In April 2023, Itaipu’s board of directors approved the price of $16.71 per kilowatt after Brazilians and Paraguayans reached a consensus. Elected as the president of Paraguay shortly after with the promise to renegotiate the agreement, Mr. Peña has been pushing for the increase.

Paraguay wants an increase in tariff to around $20.75 per kilowatt. The price of energy fell after the debt resulting from the construction of the plant was paid off. On Monday, in Asunción, the two ministers delivered the message that Brazil would not “compromise” with the price of energy.

The increase is pivotal for Paraguay, as the neighboring country receives payment from Brazil for the surplus of unused energy from the plant. Under the Treaty of Itaipu, each country is entitled to 50% of the electricity generated by the hydropower plant, but Paraguayans never reached such amount, since the country consumes less than 20% of the total.

In 2022, for example, the neighboring country used 17% of the power generated by the plant. The remaining 33% of the Paraguayan part was purchased by Brazil for around $1 billion.

Enio Verri, the managing director at the Brazilian side, confirmed last week that discussions around the tariff had turned into “a diplomatic problem” and that the solution would come “in the timing of foreign affairs.”

Fueled by calculations made by the Ministry of Mines and Energy, Brazil’s Foreign Affairs Ministry started negotiating an agreement with Paraguay. Valor has learned that the possibility of increasing the tariff was not considered by the Brazilian side, which fears the effects on the economy.

The impasse resulted in halting the approval of the plant’s budget for 2024, which led to delays in payments of vacation plans and year-end bonus to employees. Without an approved budget, Itaipu could not make any payments for the 2024 financial year.

In response to the Foz do Iguaçu Electricity Trade Union (Sinefi), the Regional Labor Court of the 9th Region issued a provisional measure ordering the plant to make payments to employees on the Brazilian side. The decision did not include workers in the neighboring country.

*Por Murillo Camarotto — Brasília

Source: Valor International

https://valorinternational.globo.com/
/by

Record number of job quits amidst hot labor market

Termination at worker’s request exceeds 7 million in 2023; most people leave jobs seeking better opportunity

02/07/2024

Carolina Reis — Foto: Ana Paula Paiva/Valor

Carolina Reis — Foto: Ana Paula Paiva/Valor

One of the indicators of a tight labor market, termination of job contracts at the request of workers hit a record last year. A total of 7.3 million workers left their jobs at their own request in 2023, compared to 6.8 million in the previous year and 5.6 million in 2021. Official records began in 2004.

According to economists, the increase is a result of a larger number of people seeking jobs that are in alignment with their aspirations, a larger number of young people in the job market, and the methodology of the new General Register of Employed and Unemployed Workers (CAGED). The level of education is also an important variable. Highly-educated workers accounted for the largest number of resignations.

A survey carried out by LCA Consultores shows that Brazil had 21.5 million terminations of job contracts in 2023, 7.3 million of which were at the request of the worker, which is equivalent to 34% of the total. In 2022, there were 6.8 million resignations (33.6%), and in 2021, 5.6 million (33.4%). In 2020, the first year of the COVID-19 pandemic, resignations totaled 3.8 million (27%), in 2019, 3.6 million (24%) and 3.3 million (23%) in 2018.

“The indicator points to a tight [job] market. Most people are quitting their jobs probably because they are able to find positions elsewhere, which indicates an increase in job openings,” said Bruno Imaizumi, LCA’s economist in charge of the study.

According to him, in addition to the new CAGED methodology, which captures admissions and dismissals in a broader way, the numbers can be explained by the entry of young people into the job market.

“For that group, professional success means having a job aligned with their aspirations. If that is not happening, they [young professionals] keep switching jobs and won’t stay in the same company for the rest of their lives,” he said.

“Another reason is the COVID-19 crisis, which changed working relationships and brought to light other factors than just salary in the decision to move to a different employer.”

Lucas Assis, an economist at Tendências Consultoria, notes that the pandemic changed the dynamics of the job market. “Many workers are possibly reflecting on their career path and prospects, especially those working in low-paying jobs,” he points out.

Highly-skilled workers are the ones who quit the most, the LCA survey shows, indicating that the education level has a key weight when negotiating a job position.

The share of resignations compared to the total number of terminations last year reached 32.4% among workers with incomplete secondary education, 33.8% in the group that completed secondary education, 41.8% in the group with a higher education degree. Among those holding a master’s degree, that percentage reached 42%, in the group with a PhD, 40.9%, and in those with a complete postgraduate degree, 46.9%.

Public relations specialist Pedro Prata, 40, worked for more than two years at an electricity company. In 2023, he moved to the Ellen MacArthur Foundation, an organization promoting the circular economy.

“On the one hand, the new opportunity would allow me to work again with public policies and, thus, expand the impact of my work on the social, economic, and environmental fronts. On the other hand, it would give me greater autonomy, flexibility, and a work environment of trust,” he said. Mr. Prata notes that, in general, the pandemic has highlighted old problems in some work environments. “Disrespectful relationships, overwhelming volume of tasks, excessive controls, little freedom to express opinions. I have the feeling that, when working from home, many people realized how bad the environment in their offices was,” he said, based on his own experience.

“I think it’s important to be in an organization that combines the satisfaction of waking up to work with remuneration that is consistent with your delivery. It makes no sense to have job stability and emotional instability. Furthermore, it’s not about staying longer in the same place.”

Engineer Carolina Reis, 42, has similar opinion. “I don’t see staying in a single job for a long time as crucial. I value being in positions that resonate with my aspirations and that offer a healthy balance of personal and professional life,” she said.

Ms. Reis, who worked for 14 years as a business manager at Continental, is now in the middle of a career transition process. After three years and four months at Amazon, as an expansion and operations manager, she is now moving to Cummins, where she will serve as an executive sales manager. “The opportunity at Cummins is more aligned with my current career aspirations and personal skills,” she said. “[But] I am willing to reconsider my position if the work-life balance I seek is not achieved.”

Mr. Imaizumi’s survey shows that younger people were behind most resignations from formal jobs last year. Among young people aged 18 to 24, 39.5% of total terminations were at the request of the worker. That share decreases to 36.5% in the age group between 25 and 29 years old, and to 33.1% among those aged 30 to 39 years old. In the range between 40 and 49 years old, it falls to 29.7%. And even further among people aged 50 to 64 and over 65, to 24.7%.

Some of the activities that had a proportion of resignations higher than the average in 2023 were international bodies, human health and social services, education, accommodation and food, housekeeping services, financial services, car sales and repair, information and communications.

Among the regions with higher job quitting were the South (41.3%), Central-West (38%) and Southeast (33.7%). Among the states with the highest share are Santa Catarina (45.2%), Mato Grosso do Sul (43.8%), Mato Grosso (41.7%), Paraná (40.9%), and Rondônia (38.6%). The states of Espírito Santo, Minas Gerais, and Rio de Janeiro were below the national average (34%). The largest share of resignations is in regions and states that show better economic activity.

Hélio Zylberstajn, a senior professor at the Economics and Business School of the University of São Paulo (FEA-USP) and coordinator of the Salary Survey at the Economic Research Institute Foundation (FIPE), points out that the scenario is more favorable for those who quit than for those starting a new job.

One way to measure that is the salary pressure indicator, the ratio between the average salary of those who enter and the average salary of those who leave a job. For example, when the salary of someone entering a new job is R$900, and those who is leaving earn R$1,000, the salary pressure is 0.9. If someone who enters earns R$1,000 and someone who leaves earns the same, the salary pressure rises to 1.

A survey carried out by FIPE underscores the idea that the education level is directly related to mobility in the job market. The study shows that salary pressure for those with a higher education degree went up from 0.95 in 2022 to 0.98 in 2023. For those who hold a master’s degree, it went from 1.01 to 1.02, and for those with a PhD, from 1 to 1.04.

“The salary pressure for who resigned in 2023 is greater than in 2022. Those who left a job last year are getting better positions than in 2022,” Mr. Zylberstajn said. “The numbers reveal that there are opportunities in the job market, and the people who resigned in 2023 did better than in 2022.”

Despite the recent increase in resignations, the numbers are expected to decrease over the year.

“For 2024, the job market should slow down, in line with the loss of momentum in economic activity,” Mr. Assis points out. Tendências estimates a 1.5% increase in GDP this year. “The more intense acceleration of the labor force, compared to employment, should increase the unemployment rate. For the short term, the share of resignations is expected to fall.”

*Por Marsílea Gombata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Minutes show policymakers more concerned about inflation, employment

Document has harder tone than announcement of decision

02/07/2024

Robson Pereira

Robson Pereira Gabriel Reis/Valor

The Central Bank’s Monetary Policy Committee (COPOM) revealed that last week’s decision was taken after “more in-depth” discussions about the labor market and that services inflation deserved “greater scrutiny.” With these factors added to the committee’s assessment of a slowdown in activity, market participants saw policymakers more concerned about the economic situation, although there was no change to the scenario of another 50-basis-point cut in the Selic policy rate.

At various points in the minutes, the COPOM indicated that the economic scenario had evolved in line with expectations. However, the committee saw the need to include more in-depth discussions in the document, especially on the labor market and services inflation.

The recent increase in real incomes in the labor market data and the worse-than-expected results for underlying services inflation in recent IPCA readings—Brazil’s official inflation index—have recently triggered a warning signal among market participants. Thus, according to the minutes, the COPOM also noted these items, which was reflected in market participants’ sense of a cautious tone in the document.

In recent weeks, signs of a domestic economy that is still very hot and the deterioration in the behavior of U.S. Treasuries, with rising rates, have led to a sharp adjustment in local interest rates. At one point, the market was pricing in a Selic rate close to 9.5% per year at the end of this year.

“We saw the statement [of the decision] with a more neutral tone, and there was an expectation that the minutes would also come without any major news. However, we saw a more hawkish tone,” said Robson Pereira, chief economist at Brasilprev. He notes that the COPOM maintained its forecast for the next moves, signaling a further 50-basis-point cut in the Selic, but made “quite important” changes in its assessment of the scenario for conducting monetary policy going forward.

Mr. Pereira notes that the minutes brought to light the Central Bank’s greater concern with the labor market and services inflation, and that the monetary authority reinforced that uncertainty is high. “The Central Bank signaled that there is a more intense debate about the heated labor market and the causes of services inflation, in addition to the impact of the global scenario. All this is presented in a context of uncertainty, but it is a coherent minute that shows a more concerned Central Bank.”

In its baseline scenario, Brasilprev projects the Selic rate at 9% per year at the end of this year and 8% in 2025. “At the moment, we don’t see any asymmetry, but before today’s [Tuesday’s] minutes, we saw some asymmetry for [a Selic rate] a little below 9%,” he said.

In terms of inflation, the firm expects the IPCA to close the year at 4% per year, but the economist points out that it tends to decelerate further, which could eventually change something for interest rates as well. “Of course, central banks make decisions looking further ahead, and for 2025 we believe that inflation will be very close to target. The minutes cite the Central Bank’s projection of around 3.2%. That’s a workable number. We’re working with something close to 3%, but it’s a gradual process and the risks are very high,” Mr. Pereira said.

Speaking at a BTG Pactual event on Tuesday, Central Bank President Roberto Campos Neto at times struck a similar tone to the minutes. He said, for example, that it is “very difficult to see a more sustained decline in inflation without a decline in services inflation.”

Mr. Campos also highlighted the significant fall in “implicit” inflation, which is priced in by the market via the NTN-Bs (National Treasury notes), which was seen by the market as a more “dovish” signal and caused futures rates to fall on Tuesday. The January 2026 DI rate fell to 9.67% from 9.71%.

For Rafael Cardoso, chief economist at Daycoval Asset, it’s not possible to say that the minutes brought hawkish components than expected. “We believe that the Central Bank is explaining the reasons for its guidance, rather than adding new hawkish elements to the communication. The explanations are in line with what we have been following lately, and internally there is also a discussion about whether there is still an improvement in inflation on the near horizon,” said the economist.

Mr. Cardoso also notes that the COPOM’s own inflation scenario has not changed. “We think the minutes are very neutral,” he said. In his opinion, there is little room for further improvement in services inflation or goods prices.

In Daycoval Asset’s baseline scenario, the Central Bank should continue the current pace of 50-bp cuts, bringing the policy rate to 9% per year by the end of the year. “We also project a Selic of 8.5% in 2025, but we see risks that this level will be reached this year, depending on factors such as the external scenario and a slowdown in economic activity. Our call for the Selic to reach 9% in 2024 has a bearish bias,” he concludes.

*Por Victor Rezende, Gabriel Roca, Estevão Taiar, Alex Ribeiro — São Paulo and Brasília

Source: Valor International

https://valorinternational.globo.com/
/by

Fonplata to double capital, attract partners

Spain, Colombia, Portugal, and the United Arab Emirates are interested in joining Southern Cone bank, CEO says

02/06/2024

Luciana Botafogo — Foto: Wenderson Araujo/Valor

Luciana Botafogo — Foto: Wenderson Araujo/Valor

Fonplata—a development bank by Brazil, Argentina, Bolivia, Paraguay, and Uruguay—plans to double its authorized capital and seek new partners to leverage its credit portfolio and, as a consequence, expand investments in member countries. Plans for the year also include raising $300 million to $400 million in foreign capital. In Brazil alone, the bank’s portfolio totals $1.7 billion, considering approved, existing, and non-existing projects.

In an interview with Valor, CEO Luciana Botafogo said that the publication, in December, of a decree by President Luiz Inácio Lula da Silva enacting changes to the Fonplata’s constitutive agreement, as well as Argentina’s decision to remain as a partner opened some room for discussing other matters, such as the vote on the capital increase, from the current $3.14 billion to $6.5 billion. The distribution of Fonplata’s shares was pending ratification of adjustments to the constitutive agreement by all member countries. Brazil was the last country to enact the change.

The increase in authorized capital will help maintain the pace of credit granting from 2027 onwards. Currently, average growth is around 10% per year. “We plan to continue [at this level], or maybe reduce it a little, to 9.5%, by 2026. The funds we have give us peace of mind for now, but not from 2027 onwards. If we can’t increase capital, I would have to reduce the pace of growth,” Ms. Botafogo said.

She said the proposal has been submitted to the bank’s governors, who are the Financial Planning or Finance ministers of the five countries. “We hope to have a favorable vote in the next ten days to increase capital to $6.5 billion. We will increase the bank’s capital by more than a double-fold. That is crucial to increase our lending capacity, our ability to operate in the five countries,” she said. Ms. Botafogo is the first woman to take the position at the bank, which turns 50 in June.

Despite fiscal challenges in the region, such as in Argentina and Brazil, the CEO believes the entry of other countries interested in investing in sustainable projects in Latin America can reduce the need for large capital infusion by the bank’s current partners in the medium and long terms.

“By distributing [the capital] between the five founding countries and new, non-founding countries, we dilute the demand for capital in countries that are facing fiscal challenges, which are our five countries. Also, over the last ten years, those countries allocated an amount 20% higher than what we are currently proposing. It’s about allocating from now on, over the next ten years. So, we are reducing the annual entry amount that each member country can contribute. That helps because it weighs less on the fiscal situation,” she said.

According to Ms. Botafogo, several countries have responded positively to the possibility of becoming a member, including Spain, Colombia, Portugal, the United Arab Emirates, and Singapore. “But now we can formally come up with a proposal; until then, those were just approaches,” she added. “Our expectation is to have at least two new countries this year and two more next year. The idea is to start increasing capital from 2026 on,” she said.

Among the issues that need to be agreed upon by the five current founding countries is how to ensure the focus of investments continues to be in Latin America. Fonplata often works in loans or partnerships to complete small construction works that do not always arouse interest from institutions such as the Inter-American Development Bank (IDB) and the Development Bank of Latin America and the Caribbean (CAF).

To ensure a regional focus, it is being debated, for example, that the votes of the founders have a greater weight than those of other countries. In addition to enabling an increase in resources for investment in construction work, the entry of other countries will also help improve the bank’s rating, which in turn helps reduce the cost of international funding.

The bank’s CEO also said $150 million to $200 million per year are invested in projects in Brazil. For example, Fonplata has a loan of nearly R$200 million in Maceió (capital of Alagoas state) to mitigate the Braskem’s mine risk of collapsing.

Asked about the new administration in Argentina and its impact on the bank, Ms. Botafogo said Argentines are interested in maintaining the relationship with Fonplata. According to her, all approved contracts, involving $600 million to $700 million, are being reviewed at the request of the new Javier Milei’s administration.

She said Argentina requested the suspension of funds for construction works that have not been released so that the funds can be allocated to social projects “to guarantee this transition, until the inflation problem is solved.” “They [the Argentine government] are currently making fine tuning. We are together with the technical teams, seeing what will be maintained, what will be canceled, which construction work was being carried out and which will not stop,” she said.

*Por Edna Simão — Brasília

Source: Valor International

https://valorinternational.globo.com/
/by

Brazilian export volume balances price decline

Record quantity offsets 6.3% price drop, generates 1.7% revenue gain

02/06/2024

Lia Valls — Foto: Leo Pinheiro/Valor

Lia Valls — Foto: Leo Pinheiro/Valor

In the midst of falling prices, the increase in exported quantity led to a rise in Brazil’s export revenue in 2023, contributing to a historic trade surplus. Export volume hit a record high last year, continuing a trend established for over a decade. The upward trajectory is expected to persist, albeit at a slower pace compared to the substantial variation seen last year. Forecasts suggest that price fluctuations in 2024 will be less pronounced after the increases observed in 2021 and 2022.

The surge in exported quantity in 2023 was primarily fueled by China, which saw a 30% increase compared to 2022. Additionally, there was a notable 25.9% rise in volume exported to Mexico, propelling the country from eighth to fifth place among Brazil’s main export destinations. Although to a lesser extent, increases in volume were also observed in exports to key partners such as the United States and Argentina, with respective upticks of 5.8% and 7.9%. Conversely, sales to the European Union saw a 2.1% decline.

In terms of value, China dominated Brazil’s exports in 2023, accounting for 30.7%, followed by the U.S. at 10.9%, and Argentina at 4.9%. Mexico held fifth place with 2.5%, while the Netherlands, serving as the gateway to the European Union, absorbed 13.6% of exports.

Despite a 6.3% decline in the average prices of total Brazilian exports in 2023, export revenues increased by 1.7% compared to 2022 due to an 8.7% growth in shipped quantity, according to data from the Secretariat of Foreign Trade (Secex). This data indicates a historic peak in the export volume index for 2023, surpassing the previous record set in 2022.

Driven by soybeans, iron ore, and oil, sales to China reached unprecedented levels in 2023, exceeding $100 billion for the first time, marking a 16.6% increase over 2022, to $104.3 billion. Despite a 9.7% drop in average prices, the significant rise in volume more than compensated for it.

The export prices and quantum data are from the Indicator of Foreign Trade (Icomex), compiled by the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), based on Secex figures.

Lia Valls, economist and coordinator of Icomex, says that China’s performance is explained by Brazil’s agenda of exports to the Asian country. The Chinese bought 73% of all the soybeans Brazil exported in 2023, as well as 64% of iron ore and 47% of crude oil, according to Secex data. The three products accounted for 75% of the value of total Brazilian exports to China last year.

The good performance of exports from agriculture and the extractive sector, says Ms. Valls, has been going on since the late 2010s, with agricultural exports growing annually by an average of 10% and extractive activities by 5.2% from 2008 to 2023.

Last year, the record grain harvest led to a greater increase in volume, with a 25% rise in the amount of agriculture exports compared to 2022. The extractive industry advanced by 16.5% in the same comparison. Conversely, the volume exported in the manufacturing industry fell by 0.4%.

Ms. Valls points out that the performance of the balance as a whole also depends on imports. Last year, she stresses, the trade surplus of $98.8 billion was also the result of a very large drop in the trade deficit in the manufacturing industry, which fell to $37.7 billion in 2023 from $57.2 billion in 2022. The economist points out that this movement was mainly due to the fall in the value of imported industrial goods.

Looking ahead, the performance of Brazil’s exports to China in 2024 will depend largely on the pace of economic growth in the Asian nation, Ms. Valls said. China, she points out, has always used investment as a way of activating the economy, but fiscal problems could affect this policy. Brazil’s grain harvest is expected to be important in 2024, but it is likely to fall short of that of 2023, which will also limit exports. Despite uncertainties, China is expected to maintain growth, albeit at a lower rate compared to previous years—market estimates are below the Chinese government’s 5% GDP growth target for 2024. The significant increase in export volume in 2023 was partially due to lower bases in previous years, particularly in 2021 and 2022.

In contrast to sales to China, exports to the United States, Brazil’s second largest trading partner, showed more modest figures in 2023. The quantity exported to the U.S. increased by 5.8% in 2023 compared to the previous year, but this was not enough to compensate for the 6.8% drop in average prices, which led to a 1.5% reduction in the value sold to the U.S.

The scenario for the United States is explained by Brazil’s diversified exports, as industrialized goods predominate, said Welber Barral, a partner in the BMJ consultancy and former secretary of Foreign Trade. According to Secex, crude oil, semi-finished iron and steel products and aircraft and parts were the three most exported items to the U.S. in 2023, accounting for 31.4% of the value sold by Brazil to the U.S. last year.

Regarding exports to Argentina, the third-largest destination for Brazilian exports, both prices and quantity increased by 1.8% and 7.9%, respectively, in 2023 compared to the previous year, leading to an 8.9% rise in export revenue. However, Mr. Barral recalled that this surge was heavily influenced by atypical shipments of Brazilian soybeans due to crop failure in Argentina. In 2023, Brazil shipped $2 billion worth of soybeans to Argentina. In 2022 there were only $181 million. This level of soybean exports to Argentina is unlikely to be repeated in 2024, said Mr. Barral.

Soybeans accounted for 12% of the value shipped to Argentina last year, the same share as automotive parts and accessories. In third place were passenger cars, with 8.4%. At the same time, says Ms. Valls, there is still a lot of uncertainty about the Argentine economy, which could affect demand for Brazilian exports.

Among the biggest destinations for Brazilian exports, Mexico stood out last year. Exports to Mexico rose by 25.9% in quantity, which offset the 3.2% drop in prices and led to a 21.6% rise in export revenue. Secex data shows that exports to Mexico grew, driven by manufactured goods such as cars and vehicles for transporting goods, whose export values rose by more than 60% in 2023 compared to the previous year. But the soybean effect also appeared in sales to Mexico. The value of soybeans exported to the country rose 87.8% in 2023 compared to 2022. Last year, the three items combined accounted for 28.4% of the value exported by Brazil to Mexico in 2023.

“There are many uncertainties, but this trend in commodity exports is expected to continue for some time, unless we have a very big shock, but we shouldn’t have the same variation as last year. Oil production is also coming in now,” said Ms. Valls. According to Icomex, the volume of commodities exported in 2023 increased by 14.2% compared to 2022. The quantity exported in the non-commodities group fell by 1.9%.

Bruno Cordeiro Santos, a market analyst with StoneX, says that the outlook is that, driven by the pre-salt, the increase in oil production expected by 2029 will result in a rise in export volumes, since domestic refining capacity is unlikely to increase by the same amount. The consultancy’s estimates for oil production are in line with the official ones from the Energy Research Company (EPE), he says. Considering the investments made by Petrobras and private-sector companies, he points out, Brazilian production is expected to reach around 5 million barrels a day by the end of this decade.

*Por Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Banco do Brasil, Bradesco decide to delist Cielo

The long-awaited move was also made by rival banks

02/06/2024

Cielo repeats move made by other major banks with their card acquirers — Foto: Divulgação

Cielo repeats move made by other major banks with their card acquirers — Foto: Divulgação

Banco do Brasil and Bradesco, Cielo’s controlling shareholders, have decided to make a takeover bid to take the credit card company off the stock exchange. The move, which had been expected by the market for years as the company lost market share to rivals Stone and PagSeguro, came as a surprise due to its timing. Expectations had cooled as the card acquirer’s results recovered.

No date has yet been set for the takeover bid. The amount to be paid per share is expected to be R$5.35, up from Monday’s close of R$5.03. Bank of America has been hired as the independent appraiser of the transaction. The shares are up 10.79% since the beginning of 2024, but are down 52.55% over five years.

In a notice of material fact, BB reported that its board of directors had approved an increase in its indirect stake in Cielo to 49.99%. Bradesco’s statement does not mention a stake.

With the takeover bid, Cielo’s registration as a public company with the CVM will be changed from category “A” to “B,” which includes issuers with securities other than shares. “The application for registration of the tender offer with the CVM will be made within the time limit set by the applicable regulations,” BB said.

The buyback repeats the move made by other major banks with their card acquirers. In the past, Santander listed its acquirer Getnet on the stock exchange, but withdrew it from the market shortly thereafter. The same happened with Itaú’s Rede, whose shares were traded on the market in the 2000s.

Cielo has been losing market share for several quarters, and market participants and analysts point to a more aggressive competitive stance by acquirers linked to non-listed banks—in other words, Rede and Getnet. In the second quarter of last year, Cielo lost the lead to Rede.

An executive familiar with the talks said that BB and Bradesco had already been discussing a delisting and, after much discussion, reached an agreement, even though the company’s shares have risen in recent months. Currently, the card acquirer has a market capitalization of R$13.7 billion. Bradesco owns 30.06%, BB 28.65% and 40.57% are floating shares.

The discussions have been going on for years and have passed through several federal administrations, cooling and heating up at certain times. There were talks during the last administration, but according to a source, they are flowing better now. Banco do Brasil is a state-run bank.

Cielo released its results last night and once again felt the impact of its strategy to focus on profitability in the fourth quarter. The card acquirer saw a decline in volumes processed and in its active client base. On the other hand, receivables factoring products broke records.

The company reported recurring net income of R$480.8 million in the fourth quarter, up 5.3% from the previous quarter, but down 1.9% from the same period in 2022. According to the company, the decrease reflects the lower volumes processed by Cielo Brasil and the increased investments in the commercial team and the operational transformation process. These factors were partially offset by the steady improvement in the financial result, it added.

Net operating revenues for the period stood at R$2.77 billion, up 5.8% quarter-over-quarter and 0.6% year-over-year. Cielo Brasil’s revenue decreased by 2.4% compared to the same period of 2022, while Cateno’s revenue increased by 5.2%. In the fourth quarter, the card acquirer’s total payment volume (TPV), after losing market share in recent quarters, was R$221.85 billion, up 12.4% quarter-over-quarter and down 4.1% year-over-year. On the credit side, the volume decreased by 1.1% year-over-year. On the debit side, it decreased by 8.4%.

The company ended the year with 870,000 active customers, down 5.3% quarter-over-quarter and 17.7% year-over-year. Cielo said the decline was mainly due to the behavior of smaller customer segments. The “take rate” (the fee charged for each transaction) was 0.74%, compared with 0.79% in the third quarter and 0.72% a year earlier. The card acquirer also reported a new record in term products. The receivables factoring solutions amounted to R$33.7 billion.

*Por Álvaro Campos, Mariana Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
/by

Eneva, Scania, Virtu plan to decarbonize road transportation

The idea is to promote delivery of goods by trucks powered by liquefied natural gas

02/05/2024

Lino Cançado — Foto: Divulgação

Lino Cançado — Foto: Divulgação

Eneva, Scania, and Virtu GNL have entered into a partnership to decarbonize road transportation in Brazil. The idea is to promote the delivery of goods by trucks powered by liquefied natural gas (LNG). The trio has contracts with Vale and Suzano to transport products on the so-called Matopiba route, an acronym for the states of Maranhão, Tocantins, Piauí, and Bahia.

The contract provides for the delivery of 180 LNG-powered Scania trucks at a cost of around R$1 million each, for a total of R$180 million. The idea is that Eneva will be in charge of producing the gas molecule and Virtu for delivering the final product. Virtu and Eneva already work together through a joint venture, GNL Brasil, which engages in the logistics of delivering natural gas to places without pipelines, carrying out transportation, storage, and regasification.

Eneva estimates that the new market for LNG-fueled long-haul trucking could initially demand up to nine million cubic meters of natural gas per day, reducing Brazil’s emission intensity by two million tonnes of carbon dioxide per year. Compared with the traditional diesel fleet, the reduction in carbon dioxide emissions can be as much as 20%.

According to Alex Nucci, Scania’s sales director, the volume of 180 trucks is the largest purchase of LNG vehicles in Latin America. “One of the important points of this operation is the fact that it is all domestic, with engines produced in Brazil. The vehicles are 100% powered by gas, they are not adapted. The price of an LNG vehicle is not that different from a diesel vehicle. But with nationalization and economies of scale, the LNG vehicle may become more competitive.”

Initially, thirty vehicles will be used in the partnership’s first operations, which are due to begin in mid-April. The remaining 150 will be delivered throughout 2024.

GNL Brasil supplies LNG for the industrial activities of Vale and Suzano. For Suzano, which has a plant in the city of Imperatriz (Maranhão), GNL Brasil transports around 160,000 cubic meters per day over a distance of 548 kilometers. For Vale, which has a plant in São Luís, also in Maranhão, GNL Brasil transports around 250,000 cubic meters per day over a distance of 320 kilometers.

Eneva’s CEO, Lino Cançado, said the expectation is to achieve scale quickly: “We will start with these 180 trucks, but the vision is that the market is bigger than that and can be scaled up quickly.” The project does not have an exclusive contract and could meet the needs of other companies in the future.

Since 2022, Eneva has invested R$1 billion to reach the capacity to liquefy 600,000 cubic meters of gas per day. According to Mr. Cançado, Eneva has idle gas liquefaction capacity and can increase the volume according to demand. The company produced 360 million cubic meters of gas in the fourth quarter of 2023.

Virtu GNL CEO José de Moura Jr. said LNG-powered vehicles combine efficiency with decarbonization: “For long-distance transport like this, the solution is LNG. The electric vehicle has no autonomy, and the vehicle has to make many stops to refuel. Here, in this partnership, we have the molecule, the truck, and the service.” Virtu GNL has invested R$5.7 billion to promote the infrastructure of refueling stations.

*Por Kariny Leal — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
/by