The raw material of the agricultural production is essential to form costs and prices of many other products that are available to consumers. Price oscillations to producers tend to be transferred to consumers in different intensities, depending mainly on trading costs: how are conditions of transportation, storage and processing (quality and availability). Equally important are clauses of contracts between the parties (spot transactions or terms contracts), the production share that is shipped (setting the level that domestic prices are affected by the exchange rate and values in dollar) or the share of the demand that is met by imports. The market structure is indeed important to stablish profit margins and the pace of adjustments to changing market conditions. In a normal scenario (stability), price oscillations – up or down –, to farmers are more significant compared to those for consumers. Trading costs are formed by items whose prices (salary, rent, electricity etc.) are more stable (readjusted annually, in some cases).
Studies elaborated by Cepea researchers based on multivariate analysis of time series indicate that a 10% shock on paddy rice prices to Brazilian producers affects roughly 7.7% paddy rice quotes after 12 months, and circa 2.6% rice values in the retail market in Brazil. If there is a 10% shock on soybean prices, 4.8% of it reaches end consumers of refined soybean oil. A similar price shock on corn tends to impact 1.7% and 1.4% chicken and eggs values, respectively, both in the retail market. On the other hand, in the cotton market, a price shock practically does not hit clothing values in retail. In this chain, cotton can be replaced by artificial or synthetic fibers and there is the possibility to import and/or export products in any stage of the market chain. It is important to mention that the analysis was performed based on data from 2001 to 2018.
In 2020, distinct price oscillations were observed for Brazilian producers, and many supply chains were affected by increases in both import and export parities. In Brazil, the exchange rate is the main aspect that sustained parities: from May to October 2020, it was between 31% and 41% higher than the average of the same period in 2019. Moreover, a specific change in the domestic demand, as observed for rice, can also be mentioned.
According to data from Cepea, paddy rice prices paid to producers registered the most intense oscillation in 2020 (102.2%), affected by parities and a shock in the demand. Moreover, there were fluctuations for soybean and corn, at around 70% and 84%. As for soy, price oscillations between Paranaguá port (PR) (73.2%), paid to producers (73.8%) and in the wholesale market (77.4%) were similar.
Regarding corn, percentage variations were different for producers and in the wholesale market. Prices paid to producers rose 84.1%, on average, while quotes upped 69.1% in the wholesale market and 56.4% in Campinas (SP). In the corn market, supply and demand conditions affect quotes in the short-term.
Wheat values, mainly affected by the import parity, soared in 2020 (59.5% to producers and 56.4% in the wholesale market). International increases and difficulties to purchase the product from Argentina explain price rises.
Cotton quotes, in turn, decreased at the beginning of the pandemic, due to the lower industrial production; however, they were underpinned in the second semester of 2020 by the return of economic activities in Brazil and in the world. In 2020, the increase was near 50%.
On the other hand, in a chain focused on the local market, such as cassava, domestic events influenced the market more. Prices for cassava to the industry in the Central-South Brazil had dropped up to August 2020, but resumed increasing in the following months. Still, on the average, the year finished with nominal prices 4.2% lower than in 2019.
Prices of agricultural products were related to the trend observed in the industrial sector, which was adjusting to specificities of each product concerning advances and setbacks brought by the pandemic. Considering some markets, data from IBGE indicate an increase of the industrial production of “rice processing and manufacture of rice products” up to mid-2020 in relation to the year before and a sharp decrease of “preparation of textile fibers” in the same comparison. Then, they registered opposite trends again. In the year, the industrialization index rose by 0.6%, while the one for textile fibers dropped 2.1%
Considering the “manufacture of margarine and other vegetable fats and non-edible animal oils”, the production pace has been intense since the second quarter of the year, upping 10.3%. There was also an increase for "manufacture of crude vegetable oils, except corn oil" (4.5%), "slaughter of swine, poultry and other small animals" (2.9%), "crushing and manufacture of starch products and animal feed” (2.0%) and “manufacture of refined vegetable oil, except corn oil” (0.7%). “Wheat milling and manufacturing of byproducts” was practically the same as that observed in 2019 (+ 0.1%) (data from IBGE).
Other sectors registered a lower industrial index compared to 2019, also according to IBGE, namely: “slaughter and meat products manufacture” (-1.3%), “dairy” (-5.9%) and “meat products manufacture” (-6.1%).
Oscillations of prices paid to producers and the industrial dynamics during the pandemic are related to price fluctuations observed in the retail market in 2020. Soy oil (103.8%) and rice (76%) quotes registered the most significant increases in the retail sector, followed by markets that use soybean and corn byproducts for animal feeding, and, therefore, they had increases for production costs, namely hog (29.6%), poultry (17.2%), dairy (from 16.8% to 26.9%) and beef (18%) sectors. The good domestic demand and the sharp pace of exports also underpinned quotes of these products.
Values of wheat flours also registered oscillations considered significant (15%); however, they were below those observed for the raw material. On the other hand, bread prices (5%), in general, registered increases close to the average of inflation of the retail market. Among cassava byproducts, such as flour (11.5%) and flour and starch (7.3%), fluctuations were less intense. General prices of the clothing sector, in turn, decreased compared to December/19 (2%), pressed down by the lower demand, mainly in the first semester.