Brazil Agribusiness Outlook 2019: Local Demand to Rise on Improving Economic Growth

For Brazilian (agri)business, the change of government following the election of Jair Bolsonaro is viewed with optimism. In 2019, Rabobank expects local demand to rise on the back of improving economic growth, although freight and trade issues pose risks.

Report Summary

• Brazilian politics experienced a profound shake-up following the election of Jair Bolsonaro, who took over as president on 1 January 2019. This development is viewed with optimism by Brazilian business, which is rooted in the fact that the new president's economics team has sent the right signals about fiscal reforms. The markets appear to have given the new government the benefit of the doubt, but they will want to see real progress in reforms in the first six to 12 months of the new presidency. This represents the pivotal challenge for the new government in 2019.

• Assuming that significant progress on reform is indeed achieved, the outlook is positive. Inflation should remain below the Central Bank's target, while Rabobank projects GDP growth of 2.2% in 2019, vs. an estimated 1.3% for 2018. Under these circumstances, the benchmark SELIC interest rate would remain stable, at its lowest-ever level of 6.5%.

• Taking key internal and external factors into account – i.e. the execution risk associated with fiscal reform, plus uncertainty regarding US interest rates and global trade – Rabobank projects the exchange rate at USD/BRL 3.70 for the end of 2019.

• “The gradual recovery of Brazil's economy in 2019 is expected to boost local demand across a range of key agribusiness sectors, including corn, cotton, beef, poultry, and dairy,” according to Andy Duff, Head of RaboResearch F&A – South America. ”Meanwhile, for soybeans, sugar, and poultry, among others, trade-related issues will be decisive for the local sector's performance.”

• Although the decline in international oil prices at the end of 2018 has helped to bring local fuel prices down, the former government's hasty compromise with the trucking sector following last year's strikes has yet to turn into a clear long-term agreement, with consensus on all sides and a solid legal basis. “The uncertainty regarding road freight rates contributes to an ongoing general risk for Brazilian agribusiness in 2019,” continues Mr. Duff. “Given this continuing uncertainty, the threat of another round of freight disruption in 2019 cannot be ruled out.”

  • Andy Duff

    Head of RaboResearch Food & Agribusiness - South America; Global Strategist - Sugar
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  • Andrés Padilla

    Senior Analyst - Beverages, Dairy, F&A Supply Chains
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  • Guilherme Morya

    Analyst - Beverages
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  • Victor Ikeda

    Analyst - Grains & Oilseeds
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  • Adolfo Fontes

    Senior Analyst - Animal Protein
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  • Matheus Almeida

    Senior analyst – Farm Inputs
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  • Fernando Gomes

    Commodity Analyst
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