Brazil's Election Outcome Could Change Supply Curve for Beef, Soybeans

John Phipps says the outcome of Brazil's presidential election could change the supply curve for several commodities, but especially beef and soybeans.
( MGN )

I’m sure farmers are keeping a close eye on the big election this weekend. You know, the one in Brazil. The outcome there could change the supply curve for several commodities, but especially beef and soybeans.

Long-time congressman and now president-elect Jair Bolsonaro, the winner of the runoff, promises to drastically roll back environmental regulations for agriculture, including speeding up deforestation, converting forests into range and cropland. Much of his support comes from the ruralistas – the nation’s farmers and agribusiness sector.

The timing could not be worse for U.S. soy farmers, as the trade war with China is diverting demand from the U.S. to Brazil. But the effect for meats is not trivial either. Brazil is the number two beef producer at 15% of world production compared to our 20%. But their production is growing rapidly, and US beef output has been essentially flat for decades. Brazil also is the leading exporter of chicken meat, although the US produces more.

One thing is clear. The global populist or nationalist political shift is definitely at odds with environmental regulation. Farmers here generally welcome the prospect of lighter environmental rules, so they should not be surprised that our competitors are equally set against compulsory practices to prevent erosion or limit greenhouse gases. Since Bolsonaro won, as expected, Brazilian acres of range and cropland could expand rapidly. He is also walking back quietly earlier criticism of Chinese investment in rural infrastructure, which could smooth the path for Chinese money and expertise to help connect new acres and output to ports.

Brazil has been plagued by exceptional corruption and has its own swamp-draining fever. Some of us remember it wasn’t that long ago – 1985 – when it was run by the military. Bolsonaro’s admiration of authoritarian government could see many former military leaders in his administration. It remains to be seen whether poor rural voters will benefit from a Bolsonaro win, but unlike the US, the Brazil’s enormous farms almost certainly will.