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2017 prospects for the farm sector are favorable to the Brazilian society

Expectations for farm sector in 2017 are, in general terms, favorable for Brazilian society. A significant increase in the volume produced is forecast. As for grains, for instance, after a 10% reduction in the previous crop, a 15% increase is predicted for 2017.

 

Severe weather events – which have been registered frequently – may not be disregarded, of course; however, excluding that, the scenario is favorable, with good supply for both the domestic market – keeping inflation under control – and exportations – providing resources to Brazil that will help to reduce the forecast deficit in the current account. Barros warns that producers must keep focused on certain factors that escape their control and can affect their profitability.

 

On one hand, the Brazilian economy might present a small growth – 0.5% is considered an optimistic result in this moment. Unemployment and salaries decrease might continue, while federal, state and municipal governments struggle in the fiscal adjustment process in which they may go deeper in 2017. This can reach prices of the products mainly consumed in the domestic market. In fact, there are expectations that the higher agricultural supply may help the performance of the remaining sectors of the economy. However, due to the small size of the farm sector (5% of GDP), this result is impossible to happen. If agriculture helps to fight inflation, it will have helped a lot.

 

Regarding the international market, some factors can be highlighted. The demand for Brazilian farming products may continue relatively firm, but the possible increase of international interest rate (“Trump effect”), which would have come together with dollar valuation, might provoke a decrease of dollar prices of our exportations. The impact of this on Brazilian producers depends on what will happen to dollar exchange rate in the domestic market. If political and fiscal issues settle down, dollar in Brazil will keep stable or register slight drops. Therefore, prices paid to producers will have mild decreases. However, if situation gets out of control, dollar rates in Brazil might go up to very high levels, which could help producers at first. Nevertheless, economic and financial risks might be severe, mainly to agents who have debts in dollar. 

 

Another concerning factor is related to oil prices behavior. There was an increase to another level, which means possible inputs price rises for producers – fuels, fertilizers and pesticides. This pressure on costs will get worse in case the dollar rates increase significantly in the domestic market. High dollar rates in Brazil help producers on the revenue side, but harm them regarding costs. All in all, the first effect usually prevails.

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