FolhaMercado Newsletter: Drought takes oranges out of the cart – 09/20/2024 – Market

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Lack of rain, lack of orange

Orange juice prices on the international market remain high, and there is no forecast of improvement on the horizon.

The reason? Harvests in major producing countries, such as Brazil, have remained weak since last year.

In the United States, a hurricane in late 2022 and the “greening” pest devastated crops. Here, it is the record drought that is punishing crops.

↳ Brazil is the world leader in the production of oranges and their juice. Around 75% of global production is Brazilian, with large areas cultivated in São Paulo and Minas Gerais.

↳ Before the surge, a ton of juice was traded between US$2,000 and US$2,500 (R$10,840 and R$13,550) on the New York Stock Exchange. This month, it reached US$7,180 (R$38,891).

Worsening estimates. About three months ago, I highlighted this scenario here in the newsletter. At the time, the drought was already affecting Brazil, but it had not yet intensified.

Since then, São Paulo and Minas Gerais have lost the equivalent of a Florida (USA) harvest due to climate change.

• As a result, the estimate for the 2024/25 harvest has fallen and is now 216 million boxes, the lowest volume in 30 years.

Effects of climate. In the citrus belt of the Southeast, there has been 31% less rain than expected since May. As the plants transpire amid the high temperatures, the size of the oranges has decreased. The drought affects 60% of Brazil.

↳ The average weight of each orange increased from 169 g to 155 g. The heat wave also accelerated the harvest, as the fruit ripened earlier.

↳ For three harvests, the Brazilian industry needs more oranges to produce a ton of juice.

↳ It took 298 boxes to obtain one ton in the last harvest, 32 more than in 2021.

Consequences. Higher prices have already hit supermarkets around the world, causing a 10 percent drop in juice purchases among Americans.

Some brands have also used other citrus fruits, such as tangerine, to mix into the product, in addition to diluted versions.

↳ Global consumption is expected to fall from 1.8 million tonnes in 2023 to 1.49 million this year.

↳ In Brazil, the IBGE indicates a 16% increase in the price of lime oranges since January.

Environmental and economic problem. It’s not just oranges that have become more expensive due to climate change. Food inflation has been pressured by severe drought and fires in Brazil.

Sugar and coffee are other products that could be affected by the environmental crisis. Cassava and corn have also started to show losses.

↳ Fires in sugarcane fields last month caused losses of at least R$2 billion to agribusiness in São Paulo, mainly to sugarcane producers.

↳ In the case of coffee, the expectation of little rain has further increased market prices. Just like oranges, the grain has soared due to the low global production.

Few cows, but lots of milk

The volume of milk produced in Brazil is on the rise, despite the number of cows having fallen. The explanation is the increase in animal productivity.

↳ The average production per cow in 2023 was 2,259 liters, an annual increase of 2.5%. In total, 35.4 billion liters were milked, a record.

↳ In 2014, it was only 1,525 liters per animal.

Understand: The data was released this Thursday (19) by IBGE. The institute states that the growth in production is associated with investments in genetics and herd management.

↳ The number of cows milked in Brazil is 15.7 million, well below the peak of 23.2 million in 2011.

The explanation for the decline was mainly the abandonment of the activity, with producers migrating to other businesses, such as grain planting.

There’s more: Although the number of dairy cows has fallen in recent years, the total herd of cattle has reached a record high.

There are 238.6 million animals, which mainly include those destined for slaughter for meat production.

↳ The herd size is 12.7% larger than the number of people in the country.

↳ Beef was Brazil’s 5th largest export in 2023, totaling R$7.4 billion.

Cock-a-doodle-doo. Another category that continued to grow and renewed the record was poultry.

The group includes broiler chickens, which provide meat, and chickens used for egg production. In total, they total 1.58 billion heads.

Billion dollar business. In 2023, Brazilian livestock generated a value of R$ 122.4 billion, 5.4% higher than in 2022.

Along with agriculture, the sector was the one that grew the most in the Brazilian economy last year, helping to generate a GDP (Gross Domestic Product) above expectations.

Milei’s threat

Strikes by Argentine airline workers, which have already affected more than 400 flights in September, have prompted Javier Milei’s government to issue a threat.

The president says he could transfer the operations of the airline Aerolíneas Argentinas to private competitors if the movement continues.

Unions for pilots, airport security guards and other workers are demanding pay increases in response to the country’s inflation.

Public or private? The privatization of Aerolíneas is a desire of President Javier Milei, but it was rejected by Congress, even with the approval of other economic proposals this year.

Transferring the company’s operations to competitors would be more viable in the short term, before the privatization itself, which would require legislative approval.

Planes on the ground. The strikes have already caused serious disruptions in Argentina. On September 13, 319 flights were canceled and more than 30,000 passengers were impacted.

The government has declared air transport an essential service, which obliges unions to maintain 50% of operations.

Tightness. The frozen wages are part of a strong adjustment program implemented by the Milei government. Amid inflation, this means less purchasing power.

The aim of the measure is to eliminate the public accounts deficit, which economists point out as the country’s main economic problem.

↳ Works were also halted, social programs were cut and transfers to states and municipalities were canceled.

↳ Despite an improvement in the accounts and inflation, and receiving praise from the IMF, the country is experiencing more poverty. The economy is facing a stronger contraction than expected.

To watch:

Is it possible to reconcile the environmental agenda with the economic interests of companies? The documentary “Green Economy”, from TV Cultura, shows that it is possible.

The film presents Brazilian entrepreneurs who are already profiting from sustainability, which is seen as fundamental to accelerating the green transition.

↳ These are companies in the electric car, cosmetics and cleaning products sector made with natural ingredients.

↳ The documentary was shown at the last United Nations Climate Change Conference, held in Dubai, United Arab Emirates, in 2023.

Low carbon. Consumers have valued companies with environmental concerns, as have investors, which reinforces the viability of new businesses.

Large companies have also set targets to reduce their emissions to zero.

↳ The so-called low-carbon economy is seen as essential to keeping global warming to “just” 1.5 °C.

↳ To achieve this, emissions must be zeroed by 2050.