Lula’s surprise election victory sends agri-commodities tumbling

{"text":[[{"start":10.48,"text":"Prices of some of the world’s biggest agricultural commodities have plunged following President Luiz Inácio Lula da Silva’s surprise election victory in Brazil, as producers in the agribusiness powerhouse cash in on a sudden leap in competitiveness."}],[{"start":25.22,"text":"The election result has caught out traders who piled into bets on rising sugar and coffee prices just days before last Sunday’s vote sent these and other markets tumbling."}],[{"start":34.88,"text":"Lula’s unexpected re-election triggered a sharp slide in Brazil’s currency, increasing the incentive for producers to sell into global markets and undermining pricing power for farmers in other parts of the world."}],[{"start":47.08,"text":"Raw sugar futures were down 4.3 per cent over the week by Friday, having fallen as much as 7 per cent following the election result. Orange juice futures were about 8 per cent below their pre-election level, while March arabica coffee futures had fallen 5.9 per cent over the week by Thursday’s close, with November soyabean futures down 2.9 per cent."}],[{"start":68.16,"text":"“Anyone who was long [in sugar and coffee] definitely felt the impact of such a surprising turn in the Brazilian election,” said Raphael Bulascoschi, an analyst at commodities brokerage StoneX."}],[{"start":80.48,"text":"Regulatory data released on October 23 showed that speculative investors had pushed their net bullish positions in raw sugar to a five-year high, adding 7,167 contracts in the week to October 20 to reach 269,008. They also increased their net long positions in arabica coffee by almost 60 per cent to 16,347 contracts, the most since early September, according to analysis by Rabobank."}],[{"start":107.4,"text":"The Brazilian real plunged from R$4.98 to the US dollar before Lula’s October 25 victory over Flávio Bolsonaro to R$5.60 the following morning — an 11 per cent drop rarely seen on currency markets and the real’s biggest one-day fall since 1999."}],[{"start":125.88,"text":"Despite recovering some ground, the real remains 8.5 per cent below its pre-election level at about R$5.45 to the dollar."}],[{"start":134,"text":"Investors rushed to unwind previous bets across financial assets that Lula would lose to his rightwing rival, who had been the favourite in polls and had promised spending cuts and more pro-business policies."}],[{"start":145.92,"text":"Brazil is the world’s largest exporter of soyabeans, sugar, coffee and orange juice, making movements in its currency particularly influential in global agricultural markets. A weak real boosts the local-currency value of crops sold in dollars, allowing producers to accept lower dollar prices while maintaining their returns in reais."}],[{"start":165.72,"text":"“It makes farmers keener to sell,” said Carlos Mera, head of agri-commodities markets research at Rabobank. The biggest producer costs, such as labour and fuel, were in reais, while the products they sold were priced in dollars, he added."}],[{"start":181.1,"text":"Bulascoschi at StoneX noted that when Brazil’s currency weakens, even if prices in reais remain unchanged, Brazilian export prices weaken."}],[{"start":188.92,"text":"“That makes Brazil more competitive, other origins lose ground and international prices end up falling,” he said."}],[{"start":null,"text":"

"}],[{"start":195.96,"text":"The past week’s sell-off interrupted a rally in sugar prices fuelled by concerns about weather damage to crops in major producing countries. El Niño, a warming of the tropical Pacific that alters weather patterns around the world, explained most of that rally, Mera said."}],[{"start":211.2,"text":"A weak monsoon in India has clouded that country’s production outlook, while heavy rain in Brazil’s main centre-south producing region has hampered its sugarcane harvest. The wet weather is forecast to continue in November, according to Rabobank."}],[{"start":224.48,"text":"“There’s a lot of sugar cane in the fields, but the amount that can be harvested is limited,” Mera said."}],[{"start":230.88,"text":"Rabobank said sugar’s decline continued even as the real recovered some of its initial losses, suggesting that investors exiting bullish bets had amplified the fall. However, Mera said he did not expect the currency shock alone to prompt most funds to abandon their positions, with El Niño-related weather risks still unresolved."}],[{"start":249.96,"text":"Coffee markets have also been unsettled by weather damage. Unseasonal rain during Brazil’s harvest caused cherries to fall to the ground, affecting quality and limiting the amount of coffee suitable for delivery against futures contracts, Mera said."}],[{"start":263.2,"text":"“Even though it was a bumper crop, the quality has been somewhat compromised,” he said. Less Brazilian coffee had reached exchange warehouses than anticipated, leaving certified stocks at historically low levels."}],[{"start":274.96,"text":"The election also added to pressure on orange juice prices, which were already falling as consumers cut their sugar intake and switched to other drinks, said Tosin Jack of commodity data provider Expana. The weaker real has added to downward price pressure by making Brazilian juice cheaper in dollar terms, but lower prices have not yet prompted more buying. “We’re not hearing that that demand will be seen anytime soon,” Jack said."}],[{"start":298.44,"text":"Murilo Mello of commodities risk management firm Hedgepoint said he remained bullish on sugar in the short term, given a global supply deficit. Beyond that, much would depend on Lula’s ability to reassure investors about Brazil’s public finances."}],[{"start":312.52,"text":"The currency slumped after the election as investors pulled cash from Brazilian stocks amid concerns about fiscal strains in Latin America’s largest economy. Economists say the government must reduce its large budget deficit and elevated debt levels to create room for the central bank to lower interest rates, which are weighing on households and businesses, including farmers."}],[{"start":331.96,"text":"If the leftwing leader “insists on his methods, his policies”, Mello said, “we could see a devaluation in the currency of 10 per cent”."}],[{"start":339.96,"text":"A weaker real would encourage Brazilian producers to lock in sales of next year’s crops. That would put pressure on global prices as Brazil’s next sugar harvest brings fresh supplies from April."}],[{"start":350.88,"text":"But the currency’s decline would also make imports more expensive for Brazilians, including the fertiliser used by farmers. Mello warned that a failure to address the fiscal situation could keep interest rates high, prolonging the squeeze on households and businesses through expensive borrowing."}],[{"start":365.72,"text":"“For the moment, the market is not giving Lula the benefit of the doubt,” Mello said. “It’s telling him we need you to address [the fiscal debt] or we’re going to make your life miserable and Brazilians’ lives miserable.”"}],[{"start":381.28,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1793576613_7240.mp3"}