Inside Grains & Commodities
Strike decimates Brazilian exports
The strike of various transport companies in Brazil, which has now lasted 10 days, has hit the agricultural sector hard. The sugar and soy sector in particular will be hit; ships lie empty in the harbor waiting for their cargo. However, the impact on total exports is not estimated to be significant.
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Choose the subscription that suits youAs a result of striking Brazilian truck drivers, more and more agricultural companies are halting their activities. More and more sugar factories have also stopped processing cane sugar and the extremely important soy export has also come to a standstill because the product cannot be transported to the ports.
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Export interest
Soy is Brazil's most important export product; it takes 14% of the total export value. Meat is in 6th place with 4% and sugar is in 5th place (with a share of 5%). These products in particular are now taking a big hit. A shortage of diesel is causing the harvesting and processing of cane sugar to come to a standstill.
The government has now ensured that many roadblocks have been removed. Commitments have also been made to get truck drivers back to work. Yet the protests continue. "The Brazilian government has now lowered diesel prices to accommodate the sector," says ING market analyst Warren Patterson. "The impact on the soy and sugar industries is expected to be short-lived."
The major exporters, such as the Chinese Cofco, no longer have sufficient stocks of soy to be able to export. Other companies sometimes still have sufficient stocks, but in all cases the pace has been reduced. Archer-Daniels-Midland employees also confirm this.
Benefit for US
The strikes couldn't have come at a worse time. Due to the tensions between China and the United States (US), Brazil was the savior. This boosted exports, resulting in record high prices. Since it is no longer possible to export large volumes, traders fear that the Chinese (now that the storm with the US has subsided) will buy more soy in America. The Chinese government has already granted state-owned companies permission to do so.
Despite the bullish news for the soy market, the CBoT futures market is under pressure. The soy crops are doing well and sowing is on schedule. It is news that the Trump administration is working on import tariffs against China and that is causing renewed uncertainty among stock market traders. Tuesday, May 29, the first trading day of the week, therefore saw a large-scale sell-off of all commodities.
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The listing of soy on the CBoT had to lose $4 per tonne on the first trading day.
In addition to having the largest soy industry in the world, Brazil also has the largest sugar industry. Most factories are at a standstill due to a lack of fuel. The work inventories have now largely been eliminated. Biosev, the second largest sugar producer in the country, has now closed 1 factories. Nationwide, 2 factories have closed. If the strikes continue, another 220 will follow this week, the trade association of sugar producers said.
Impact of sugar industry
According to analyst firm FC Stone, processing will be 11 million tonnes lower in the second half of May as a result of the strikes. It caused a small rebound in the New York sugar futures market. The biggest increase this year. LIFFE in London is now also reporting lower figures. The ultimate impact is not estimated as major.
The strikes freeze the entire Brazilian economy. The meat sector is also hit hard. Exporters are now claiming 'force majeure'. A clause in supply contracts invoking force majeure. Ships lie empty in the port. No new soy has been landed in the port of Santos since May 21. This is the largest export port in Latin America.