Fed Cut and Stable Selic Bring Challenges to Agriculture

The Federal Reserve (Fed), the central bank of the United States, cut its benchmark interest rate by 0,25 percentage points this week, bringing it to a range of 4,00% to 4,25% per year, the first cut in nine months. In Brazil, the Monetary Policy Committee (Copom) maintained the Selic rate at 15% per year, reinforcing a conservative stance in the face of inflation still above target.

Conservatively, given inflation still above target, the Copom decided to maintain the Selic rate at 15% per year, in contrast to the Fed's interest rate cut. These distinct decisions are expected to impact Brazilian agribusiness. 

Isabella Pliego (pictured), an Intelligence and Strategy Analyst at Biond Agro, assesses that the impacts for producers will be mixed. "The high Selic rate helps maintain the real's appreciation and reduces the cost of imported inputs, but at the same time it makes rural credit more expensive, limiting investment, expansion, and modernization of production," he states. 

Furthermore, the expert highlights that the appreciation of the Brazilian currency reduces the attractiveness of exports, as each dollar converted results in less revenue in reais, compressing margins and affecting the sector's competitiveness in the international market. However, producers can take advantage of an excellent strategic window. 

"If the real remains strong against the dollar, we'll have room to negotiate better conditions for the purchase of imported inputs, reduce logistics expenses, and rethink domestic financing terms. But it's essential to monitor export profitability; it's not enough to produce well; we need to ensure that the exchange rate doesn't absorb productivity gains."

Finally, in the domestic market, for operations aimed at the domestic market, the effects tend to be neutral or slightly positive, as costs can fall without major changes in sales prices.

"Those who can balance costs, protect themselves from exchange rates, and plan for the long term will come out on top," Isabella concludes.