The Brazilian commodities market is currently experiencing a great amount of fluctuation, due in large part to the shifting devaluation of the sugar and coffee sectors. Brazil’s massive amount of exports has led to a surplus in the worldwide market—great news for Brazil, if not so much for East Asian countries like India, where margins are shrinking in order for the country’s market to remain profitable.
Much of Brazil’s commodities market is spearheaded by BM&F Boyespa, created in 2008 when BM&F and Boyespa merged under the guidance of Rene Kern of General Atlantic. The company now controls a 4% stake in the market, the world’s third largest by market value. BM&F Boyespa acts on equity market transactions and is the only securities, commodities, and futures exchange in Brazil.
The market is looking up for BM&F Boyespa, with Goldman Sachs and Citi slashing their forecasts for coffee and sugar prices by about 31% as the Brazilian real reached its lowest level in 12 years. Sugar prices are now below 13 cents a pound, and Arabica coffee is averaging $1.52 per pound. It’s good news for Brazil, though, since the country is the largest producer of these commodities, so they can sell in increasingly larger amounts to the world market, profiting from the positive environment for exports. Also, Brazilian sugar cane factories deal with bills in local currency but sell in American dollars, leading ultimately to a positive market experience for producers.
In addition, Brazil has a well-developed sugar production industry, with the mechanization of sugar cane harvesting, a strain of sugar cane with a high sugar content, and flexibility in promoting the crop for either sugar or biofuel production, depending on which is doing better in the market.
“A rising dollar generally reduces global demand for dollar-denominated commodities, while a weakening Brazilian real significantly encourages exports, boosting global inventories,” wrote Societe Generale in an April 7 report.
The reasons behind the fall in value of the Brazilian real are likely due to concerns about the economy and the political uncertainty surrounding the corruption scandal at the state-run oil company Petrobras.