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Perspectives for food prices in 2018

In general, the agriculture and livestock sector has kept an increasing trend regarding supply (volume) around 4% per year, average crops and livestock; however, volumes may move up or down due to weather issues, pest attacks and diseases. Producers arrive to the 2017/18 season reasonably capitalized. The 2015/16 crop was characterized by a sharp crop failure, which was more than offset by price rises. In the 2016/17 season, approximately the opposite scenario took place. The larger output offset major price drops. On average, revenue loss was not observed in both periods, remaining at a good level, in historical terms.  

 

Therefore, projections available today for the aggregate volume of agriculture and livestock in 2018 are based on a back-to-normal yield after oscillation in volume in the previous two years. This certainly implies in some important decreases compared to the crop before, reaching 5% for grains, including soybean, corn and rice. A less significant drop is expected for sugarcane and coffee, mainly due to weather conditions. Corn and beans of the first crops may suffer important reductions, with possible seasonal supply shortage until other crops in the same year are not available. Regarding corn, ending stocks will help to overcome seasonal supply shortage, which could affect products of animal origin, namely broiler, eggs and pork. As for beef, there are concerns with the effects on the production of lower investments from discouraged cattle raisers due to the crisis this year. In relation to milk, the lack of investment might affect production. 

 

As for the demand, the Brazilian economy (revenue and employment) may keep the upturn, which will reflect on a relatively higher consumption, underpinning a possible significant increase, but still moderate, for the agroindustry and its products. This may lead to a recovery of profit margins in products for the domestic market.

 

In the international scenario, the focus may be on the pace of exportations and their distribution in the year, which ends up affecting the seasonal price behavior of more relevant products in the domestic market. The world economic growth and, consequently, demand increase, continues moderate, but firm; however, supply in Brazil and in its competitors is subject to severe more frequent international climate events. So far, prices in dollar for soybean and byproducts indicate stability in the international market. Corn may have a slight increase in most part of 2018. There is a predominant expectation that international prices of agricultural products (grains, oilseeds, sugar and coffee) can be relatively stable, unless non-predictable weather events happen. Therefore, it is necessary to look the exchange rate closely, something relatively difficult to project for 2018, a year of presidential elections in Brazil. A more significant Real devaluation might affect the cost of life due to price increases of exported products (also inputs for agriculture and livestock) and by-products.

 

Overall, the scenario for 2018 shows that, so far, expectations point to a return to normality of food supply. Still, a moderate price increase can be expected compared to low levels in 2017 due to a firmer domestic demand. The pace of exportations will control price evolution, along with the behavior of the exchange rate.

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