Brazil is No. 1 in sugarcane, orange juice, beef and coffee bean production. It’s No. 2 in soybeans. It’s a pretty big corn producer. It has rivers loaded with fish from the Amazon to Rio Grande do Sul. Yet, it cannot keep food prices down.
The Brazilian economy cannot catch a break. Soybeans rose 9,3% in a month, mostly due to the United States. Brazil soy prices track Chicago soy futures, which are rising.
But local ground food items are doing even worse.
Over the last 12 months, the price of brown beans for example, a staple food item in Brazil, has risen 44%. Beans are an important component to Brazilian inflation, accounting for half a percent of the weighting.
On Friday, the government proposed eliminating tariffs on food products they import from Mercosul — namely wheat imported from Argentina. Prices of food in Brazil are on the way up, regardless of its strong harvests this season. If you’re going to Pão de Açucar for some chicken and a bag of Tio João, bring some extra reais.
Brazil’s IGP-M index has agricultural goods rising 1.25% in June, after declining 2.22% in May. Inflation remains stubborn.
Nomura Securities sees inflation struggling to come in below 6% this year. The Central Bank will be wary of that and keep rates steady to higher in the months ahead. That, coupled with a depressing global outlook again and continued protests in Brazil over a stubbornly high cost of living with little to show for it, bodes poorly for Brazil investors.
The iShares MSCI Brazil (EWZ) exchange traded fund may finally fall below $40. Investors need to be wary of this market going forward.