VIEW FROM THE INDUSTRY: US-CHINA TRADE WAR EFFECTS, OPPORTUNITIES FOR SOUTH AMERICA AND MORE

Interview with Daniel Furlan Amaral, Chief Economist, Abiove 

Published August 2018

 

Macro 

What do you see as the two most important issues globally currently and why? How will these impact the market?

The two most important issues for the oilseed market are US trade policy and China’s reaction.

US policy may dislocate third countries’ exports and affect their competitiveness. This may happen in Europe, where US soybeans may create a potential risk for Brazilian soy and meal exports.
 

China’s reaction may create new risks and opportunities. Agreements with the US may result in improved access for North American products. On the other hand, China may see these uncertainties in trade relations as a warning for food security and invest in third countries to reduce dependence.

Local

What impact will current market conditions have on market fundamentals for the next marketing year and production in your region? What are the implications for grain and oilseed pricing?

Current conditions may increase soy acreage in Brazil and result on a new production record. Depreciated exchange rate and US tensions with third countries increased prices. However, higher transportation costs and their impacts on fertilizers’ prices as well as on producers’ income may impact yields.

 

What do you think has been the biggest change in the grain and oilseed industry over the last 24-36 months?

In Brazil, higher biodiesel mandates have impacted positively on crushing. Currently, biodiesel is mixed on commercial diesel at 10% (B10).

 

Do you think the role of the grain or oilseed trader has changed in the last 5 years? If so in what way?

The role has not changed: trade grains or oilseeds at market prices on standard quality conditions. Consumers, however, require new conditions, such as environmental criteria and stricter regulations on pesticides, and complexity increased for all operations.
 

What values do you think shape the global grain and oilseed industry and why?

Product quality, supply efficiency and liquidity. These requirements constitute the pillars of trade in commodities.

 

 

Weather

What effect is/will the weather have on grain and oilseed prices?

Weather is decisive on yields and, consequently, on production. World trade integration has a positive effect on the absorption of losses, production variability and risk reduction.

What has been the strongest influence on global weather patterns and how have these affected plantings and growth?

In South America, droughts in Southern Brazil and Argentina have caused serious losses in the recent years.

 

 

Regional

What impact do you think the geopolitics of twitter / Trump-China relations have had on the Brazilian and Argentina soybean market?

China may increase purchases from South America, but it will still need to buy US soy to supply domestic crushing industry. If tensions continue, China will possibly reinforce long-term purchases from Brazil, Argentina and third countries to reduce dependence.

 

What do you think will be the next hotspot region and why?

Brazil has a vast amount of underutilized pastures that can be converted to crops in the next years. If improvements on logistics continue, Brazil can respond for the most part of the future growth of soy and corn production.

 

Do you think that as China is buying more soybeans from Brazil, Brazil will be forced to export less to Europe?

As long as tensions with China happens, Brazil and Argentina will be more competitive on China and US’ soy will be depreciated, which improves the US access to third markets, such as Europe’s.

 

 

Freight

What are the major issues affecting the pricing of grain freight?

Freight prices in Brazil are under government intervention as it stipulates minimum prices. There is an important debate about the constitutionality of this measure. There are also relevant questions on how companies will face future purchases with uncertainties regarding farm selling prices.

 

Where will the opportunities lie for traders, producers and end-users?

Freight costs will impact heavily producing regions far from the ports. This change may result on producers and traders’ purchases of trucks for own transportation and, consequently, on inefficiency.

 

 

Technology & Innovation

What impact do you think technology is having on the industry?

Technology improves the quality of grains and oilseeds. Efficient crushing industries also reduce consumers’ prices. Both elements benefit consumers.

 

You can hear more from Daniel at Global Grain South America, taking place on 12 - 13 September 2018.