Crop planting achieves what is needed

In the international arena facts of the last 30 days, trade tensions have caused the growth rate of global merchandise trade to decline. The World Trade Organization (WTO) estimates it at just 1,2%, compared to 3% last year and well below what it estimated for 2019 in April this year: 2,6%. For 2020 they expect 2,7% growth, depending on the confusion in the world. Global GDP is expected to grow 2,3%, compared to 2,8% in 2018. There are many uncertainties, from Trump x China, Brexit, protests in countries, among others.

In the Brazilian economy the news is better, as the latest Focus Report shows the Selic rate closing this year and next at 4,5% and the IPCA at 3,29% and 3,60%, respectively. GDP is expected to grow by 0,92% and 2,0% this year and next and the exchange rate would be R$/US$4,00 in both Decembers. There is a clear increase in optimism, with the Stock Exchange breaking records, the currency appreciating and consultancies reviewing growth figures for next year, with the reformist impetus of the Government and Congress. I'm more excited about the effects of confidence and lower interest rates!

In international agriculture, in the US x China imbroglio, there was the promise of greater purchases of American agricultural products by the Chinese, but for now more promises than facts. China's import of pigs in September stood out, reaching 166 thousand tons, 76% higher than in the same month of 2018. 150 thousand tons of beef were imported, 50% more. Soybean imports fell 13,5%, reaching 8,2 million tons in relation to August. Since January, Chinese purchases were 64,5 million tons, 8% lower than expected.

Thanks to African swine fever (ASF) in China, in relation to the pig herd, information from the country's Ministry of Agriculture shows that it is 41% smaller than a year ago. The FAO report of 10/10 brought an increase of more than 400 thousand slaughters, reaching 6.692.399 pigs sacrificed in Asian countries because of contamination. Outbreaks grew in Vietnam, but also in Laos, South Korea, the Philippines and Cambodia, simply 60 more outbreaks in one month. Pork prices are having an impact on food inflation in these countries.

Prices in Chinese supermarkets are 84% higher in one year and the Government has released reserves to control and try to subsidize. Rabobank estimates that pork production in the country will fall by 25% in 2019, and in other Asian countries, causing 3 to 5 years of turbulence. The situation will improve with the availability of vaccines and improvements in biosecurity. This will create price inflation and problems for other meat importers in the world, and for Brazil an opportunity, translated into an increase in the number of qualified Brazilian plants, which jumped from 64 to almost 90 in one month, and in export volumes and prices. We have to take advantage and take drastic measures so that the problem does not contaminate Brazilian production, which is the biggest risk.

New report on supply and consumption of soybeans and corn in the USA shows important numbers. In soybeans, the harvest was revised downwards, to 96,62 million tons, against 98,87 in the previous month, thanks to the drop in productivity of around 1 bag/ha. The area is between 30,96 and 30,59 million hectares. As a result, stocks also fell by 5 mt, now estimated at 12,52 mt, compared to the previous 17,42 mt. The USDA estimates world production at 338,97 mt, compared to 341,39 million in the previous year, with a drop of 4 mt. in stocks. They estimate 123 m.t. to Brazil, 53 m.t., with Brazil expected to export 76,5 m.t.. China should produce 17,1 m.t. and buy 85 m.t.

For corn, the USDA expects 350 mt, practically the same number as the previous estimate, planted on 36,38 million hectares, with stocks in the US falling by around 5 mt. For the world, they estimate 1,1 billion tons, of which 101 m.t. in Brazil and 50 m.t.. We should export around 34 m.t., a number close to Argentina's exports. The latest outlook indicates good weather to finish the American harvest. This week, 52% of corn has already been harvested, compared to 75% on average over the last five years, and 75% of soybeans, compared to 87% on average. Therefore, this climate risk variable in the harvest is almost out of our monthly analysis.

The negative point for Brazilian agriculture was the USDA agricultural projections briefing to be released in February 2020, released in early November. The expectation is for a return to normal weather conditions and a mega harvest in the USA, which will depress prices with a large volume of stocks. With lower economic growth, the impact will be even greater. Projections indicate growth in the corn area by 5%, and soybean by 10%. This will lead to record corn production at 393 million tons, on 38 million hectares and soybeans the fourth largest, at 114 million tons, harvested from 34 million hectares. Stocks at the beginning of the 2021 harvest would be more than 10 weeks of consumption, in the case of corn, and the third largest in history, in the case of soybeans. With this, the USDA expects an average price of US$3,4/bushel in 2020 for corn and US$8,85 for soybeans. Cold water shower.

In October's data, it can be seen that fires in Brazil are in line with the average of the last ten years, and despite having risked my comment, I was right. The global fever that the Amazon was burning was a big “fake news”. The important thing is to analyze and learn from the fact. According to the Ministry of Foreign Affairs, pressure on Brazilian products due to the Amazon issue came from three fronts: Non-Governmental Organizations (NGOs); companies in European retail, and parliaments in the European Union and the United States.

Some more numbers from Brazil, agricultural exports fell 3,9% compared to September 2018, totaling US$7,75 billion against US$8,06 billion (MAPA). Soy complex fell 11,6% as a result of swine fever, totaling US$ 2,1 billion. Meat fell 8,1%, selling US$ 1,3 billion (beef US$ 607,2 million, drop of 13,1%; chicken meat US$ 530,1 million; and pork US$ 123,8 .31,6 million, increase of XNUMX%). I can't understand the decline in cattle and chickens.

In the cereals, flours and preparations account, which includes corn, sales were US$ 1,1 billion (75,2% higher). Forest products fell 22,4%, reaching US$880,9 million. Brazilian imports fell 2,1% and the surplus was US$6,7 billion, 3,9% lower. The sugar-energy complex exported US$603,9 million in September, a drop of 24,0% compared to the previous year. Sugar fell by 31,8% in September, reaching US$483,57 with an export volume of 1,72 million tons. In ethanol, exports increased 41,5% in September, reaching US$ 119,37 million.

It's worth highlighting the coffee. January to September 2019 is the highest number in the last five years with 30,4 million bags, 27,7% higher than last year. Revenue was US$3,8 billion, 6,5% higher. Robusta coffee grew the most, with almost 74%. In 12 months, 42,2 million bags were exported, a historic record. USA with 19%, Germany with 16%, Italy with 9%, Japan with 7% and Belgium with 6%, were the main markets. Around 19% of the total is certified, considered differentiated coffee.

The 2017 IBGE census indicates the presence of 5,073 million agricultural establishments on 351 million hectares, slightly less than the 5,176 million registered in 2006 on 333,7 million hectares. 4,108 million are owned (81%), 320,3 thousand are rented (6,3%) and the remainder are still in occupied establishments, without definitive title or partnerships. Regarding the evolution of areas, the areas themselves are around 300 million hectares and the leased areas have doubled in size in 10 years, reaching 30 million hectares. The 2017 Agricultural Census shows that land use increased by 17,6 million hectares. 71% of Brazilian producers were over 45 years old

According to a study by Embrapa Territorial, in the Amazon biome we have around 815 thousand farmers, 90% small. Almost 13% of its area is occupied by agriculture, 10,5% with pastures (44,1 million hectares) and 2,3% with crops (9,66 million ha). The study showed that less than 0,5% of sugarcane production, 2% of cotton and oranges, 5% of coffee, 8% of corn and 10% of soybeans comes from this region. Native vegetation accounts for 84,1% of the Amazon biome, or 353 million ha. With the water parts, 86% are preserved. In 2018, around 29 thousand deforestations occurred in this area, covering 7 thousand km2. Burnings have been carried out by producers for decades, according to Embrapa, to renew pastures, combat the incidence of ticks, eliminate crop residues and fertilize the soil with the ash.

An additional concern for agriculture is the possibility of reviewing agreement 100 (1997) which allowed the reduction of the ICMS (Tax on Circulation of Goods and Services) calculation base to between 4,9% and 8,4% in the movement of agricultural inputs (fertilizers, pesticides and seeds), which can increase by 7 to 12%. Agroconsult calculates that the cost of fertilizers purchased by producers could jump from R$46,7 billion to R$54,2 billion. Threat that needs to be defeated.

We have to look at the planting speed of our crop, as depending on the weather it could put second crop corn at risk. So far it continues at a good pace in Mato Grosso, but behind in Paraná. CONAB's first estimate for the 2019/20 harvest shows growth in production. The area grows by 1,1%, reaching 63,9 million hectares and production will reach 245,8 million tons, 1,6% or almost 4 million tons more compared to the successful 2018/19. Cotton covers 1,4 million hectares (1,1% more) producing practically the same amount (2,72 million tons of lint), soybeans will have 36,57 million hectares, growing 1,9% a year. area and reaching 120 million tons (increase of 5 m.t.), and in corn we will have 17,54 million hectares producing 98,4 m.t. (approximately 1,5 m.t. less), already reflecting the delay in planting the first harvest.

The five agricultural facts to follow now daily in November are:

1) The beginning of planting our harvest and the behavior of the climate. We are behind in some regions, and the concern needs to go away;

2) The closure of the US harvest and the progress of the harvest, with climate risks practically reducing in this final phase;

3) New estimates of the impact of African swine fever in Asia and on the prices and quantities of imported meat in the last quarter of the year, awaiting a reaction from the sector in Brazil;

4) The trade issues between China and the USA, which made little progress towards an agreement during the month, despite some increases in American exports;

5) The progress of reforms and their impacts on agriculture, whether in the appreciation of the real exchange rate or in other taxes.

At the end of this text, soybean prices delivered to a cooperative in SP were at R$83 per bag now, and R$80 for March. Corn in March was R$42 now and R$34 in June 2020. I would sell a little because I believe that we will not have climate problems and I insist on the appreciation of the Real.

Marcos Fava Neves is a Full Professor (part-time) at the Administration Faculties of USP in Ribeirão Preto and EAESP/FGV in São Paulo, specialist in strategic planning for agribusiness