Superharvest and more slaughter help curb food inflation

In addition to boosting economic growth at the beginning of the year, increased production in the countryside is also helping to bring down inflation.

The combination of a superharvest of grains – of almost 316 million tons, according to estimates by the National Supply Company (Conab) – with a growth in the number of slaughters should give consumers refreshment when shopping for supermarkets.

In the assessment of Banco Santander, these factors should contribute to a strong deceleration in food inflation, which was 13.2% in 2022. The bank’s expectation is for an increase of only 1.7% for this year, with a possibility to be close to zero.

XP Investimentos also lowered expectations for food inflation. In the last revision, the brokerage lowered its forecast from 3.5% to 2.2%, in line with the sharp and recent drop in grain and protein prices.

According to the Brazilian Institute of Geography and Statistics (IBGE), in the 12-month period through May, food at home was 4.66% more expensive. Tubers, roots and vegetables (-5.1%), meat (-5.33%) and oils and fats (-17.96%) were the items that most influenced the deceleration in relation to the rates observed last year.

Superharvest drives price retraction

Macroeconomics analyst at hEDGEpoint Global Markets, Alef Dias, points out that agriculture has been supporting economic activity, trade balance surpluses and “non-inflationary” growth.

“Although most commodity prices are having a negative performance in the year, the high quantities are leading to record surpluses in Brazil’s trade balance”, he says. trade balance recorded, in May, the highest surplus for any month since the beginning of the historical series, in 1989”.

According to him, a fundamental positive factor in the Brazilian economy is the behavior of inflation, which is cooling down more quickly than in most central economies, such as the United States, for example.

The IPCA accumulated in 12 months fell from 11.73% in May 2022 to 3.94% last month, according to the IBGE. In the US, the CPI dropped from 8.6% to 4% over the same period, according to the Bureau of Labor Statistics.

“Agriculture not only helps to avoid a bigger economic slowdown due to high interest rates, but it also helps to reduce food inflation, as higher production in agriculture means lower food prices in the market”, says Dias.

Beef has a downward trend in the coming months

A Santander study points out that the trend is for a fall in the price of beef in the coming months. The potential decrease, until the end of the year, is 4%, motivated by the increase in the number of slaughters. In the last 12 months, meat prices have accumulated a reduction of 5.33%, according to the IBGE.

“In the Brazilian beef cycle, a greater number of cows are being slaughtered. This means that more meat is being offered on the market, contributing to a drop in prices”, say economists Felipe Kotinda, Daniel Karp and Gabriel Couto.

In the first quarter, according to the institute, the total number of cattle slaughtered was 7.34 million head, 4.8% above the same period in 2022. The expansion in the supply of cows and heifers was 17.9%.

But this scenario has its months numbered and may revert to higher prices later on. Itaú BBA agribusiness analysts point out that, so far, 2023 is similar to 2018, when female discards were high for the second consecutive year. “If this pattern holds, we could see the [preço do] calf starting to recover in 2024, starting a new retention process”.

The price of chicken is practically stable compared to a year ago. Data from the IBGE show that the whole piece had an increase of 1.26%, while the price of pieces decreased by 1.69%. The pace of slaughter accelerated in the first quarter. The growth compared to the beginning of 2022 was 4.9%.

“The higher production pace occurred even before the most recent reduction in feed costs, with good exports having been the driving force behind the increase in production”, highlights the Itaú BBA report.

Less inflationary pressure in the coming months

Banco Inter claims that this scenario of falling commodity prices and lower fuel and food prices indicates that there will be less inflationary pressure in the coming months. The institution reduced its projection for this year’s IPCA from 5.6% to 5.1%.

One of the explanations is less pressure coming from the wholesale market, where prices fell 7.54% in 12 months, according to the Broad Producer Price Index (IPA-M) by the FGV.

Itaú also revised its estimates for the IPCA, from 5.8% to 5.3%. One of the reasons is lower inflation for food at home and industrial products, with a drop in commodities and resolution of production bottlenecks.

The financial institution considers that its expectation could drop even further, influenced by a more abrupt drop in the price of food.