Brazil Commodities Reviewed

Posted by James Carver on July 30th, 2008 at 12:30pm

For the commodity traders and processors, the livestock revolution has represented the best way to move up what they call the value chain. You can make a good margin on trading grain and soya, especially if you are a powerful enough presence in the global markets. The iShares MSCI Brazil Index, an exchange-traded fund that tracks Brazil’s Bovespa index, rallied 8 percent on the day of the announcement and continues to climb this week. Petrobras profit for the last trimester was up 68% totaling a profit of already 6,9 billion R$ for this year . If you’re a commodities trader or are looking to become one, you know that two elements motivate you: speculation and hedging. Although speculation and hedging are not mutually exclusive and you can do both at the same time, speculation is primarily profit oriented.

The alcohol fuel futures contracts made their debut in great style at the Nybot (New York Board of Trade), on May 7, 2004. A group of Brazilian producers participated in the event and alcohol has now a daily quotation. Hedge-fund trader George Soros said the global banking turmoil is “the most serious financial crisis of our lifetime.” Overall I can see a higher start to the week with a choppy midweek trade due to improving weather prospects heading into next weekend. Late week activity is dependent on weather and macros with no major fundamental inputs following crop progress.

Important economic reforms were aborted or retracted — central bank independence and trade liberalization among the most obvious examples. Government transparency is at its lowest level since the last dictatorship. As a result, the European food industry forced major soybean traders, including Cargill, Bunge, and ADM to declare a two-year moratorium on soybean purchases from deforested areas. Brigitte Hofer, director of consumer policy with food retailer Coop Switzerland, described how her company addresses environmental and social concerns through certification of its non-GM soy imports using the Basel Criteria for Responsible Soy Production. Other factors also contributed to the competitiveness and growth of the agrifood sector in Brazil, such as relative macroeconomic stability after 1994 and the significant reductions in government intervention and trade barriers (Jank, Nassar, & Tachinardi, 2004).

In today’s globally integrated world, production can move swiftly to the lowest-cost factory, trade flows freely, and it is difficult for workers to demand wage increases that are not supported by productivity growth. You’d be exactly right, but not just any physical good is traded on market exchanges.

Brazilian ethanol derived from sugarcane, for example, is less costly to produce than corn-based ethanol in the United States, and also yields greater environmental benefits. However, generous tax credits for blenders, tariffs on imported biofuels, and agricultural support for grain farmers in the United States and the EU make it difficult for low-cost foreign biofuel producers to compete in these markets. The development of the Brazilian oil sector is under the domain and control of Petrobras, a national oil company. It is taking the lead in the exploitation of upstream opportunities and downstream products. Brazilian stocks jumped 70 percent in the past year, while other hot emerging markets like China and India watched equities slump mightily.

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