Brazil: Domestic market begins to focus on exports of 2025 second corn crop

A week with assets experiencing lower volatility but no less tense. China continues to try to retaliate with new commercial attitudes against the US action, now affecting contracts with aviation companies. The United States does not accept such continued retaliation and prohibits the exports of a certain segment of chips while threatening to increase tariffs on China to 245%. It seems there is a deep and lasting rupture between the two largest global markets that will completely change the flow of goods in the international environment. China will have to seek new markets to maintain its export hegemony. The United States will have to sustain record domestic investment to replace fundamental raw materials and final products without causing an internal inflationary collapse. At this point, the planting of the 2025 US crop begins on the 20th, depending on weather conditions. The bias of a super area to be planted with corn begins to gain strength while a very discreet area of soybeans seems to be the clear reflection of the trade war. Would local growers sustain the current model by planting soybeans in a large area even without China as the main consumer? This is the main question for this 2025 planting. Meanwhile, the Brazilian corn second crop receives excellent rainfall in April, is shaping up to have great production potential, and the market is starting to focus on the flow of exports as an alternative flow from July onward, given the large volume of soybeans still in warehouses.

Markets were looking for a week of less volatility in assets or, at least, an oscillation of indicators within a known range. However, the announced truce of ninety days for negotiations on tariffs does not seem to have been enough to ease expectations. China seems to not accept the tariff movement and trade restrictions, starting to impose contract terminations and directly affecting US companies. This was the case with the termination of contracts with Boeing last week. This act generated more US aggressiveness. There was a decision to inhibit the sale of a certain segment of chips to China, despite the US having relaxed tariff conditions in the technology sector last week. There was also a threat to raise general tariffs on China again from 145% to 245% if retaliation continues.

The result of this environment is undoubtedly a change in the global trade axis. Markets and economies have become accustomed to the versatility of Chinese production, its trade strength and the ease of importing “cheap” raw materials to replace local production. The attempt to change this environment, which has been generated over the years, is traumatic in the very short term and, of course, affects markets.

The great concern now is the direct effect of this new model, that is, rising inflation and, perhaps, an increase in initial unemployment. The chair of the US Federal Reserve (Fed) spoke last week pointing out that inflation will persist for a longer period of time and may not be just an isolated issue. This is preparation for the Fed meeting on the 7th, when the institution will have to signal a bias toward the current new US economic condition. This is not a matter of looking at past indicators, such as the good level of employment, income, and inflation control, but of the effects of this attempt at US reindustrialization. The question is the Fed’s stance, aligned or not with the federal government’s target. Higher inflation, orthodoxly, would lead to a rising interest rate curve. A Fed stance aligned with the government could keep interest rates low or decreasing, focusing on credit supply, maintaining the investment that is absolutely necessary at this time, and a lower risk to the public debt. Which path will the Fed follow? Keep interest rates low even with high inflation? Or take control of inflation through interest rates? The second option would put the US economy into recession.

The risk of China’s actions in the US public debt environment, as the largest holder of debt credits, leads to a very weak dollar, historic lows, putting the dollar index at 99.6 points. This volatility of the dollar helps the US exports and makes imports even more expensive. It could become another inflationary indicator, but it helps contain the pressure on some commodities on which the United States depends on China, such as soybeans, for example.

The falling dollar abroad helps contain the most harmful expectations for the real in Brazil. While the dollar depreciates abroad, the Chinese currency is close to the historic limits of 7.35/dollar and could register a new devaluation at any time. This devaluation of the yuan and the dollar makes Brazil less competitive abroad, which requires an equalization of currencies so that Brazil does not lose important markets, including the Chinese market itself. The real is therefore volatile within a somewhat stable environment, between BRL 5.70/5.90 a dollar, but it is ready to respond to a greater devaluation of the yuan at any time.

On the 7th, we will also have the Copom [Monetary Policy Committee] meeting, in which Brazil’s Central Bank may suggest a bias toward stabilizing interest rates, even with high inflation, outside the target, and an uncontrolled fiscal situation. This decision could create another worrying tone for domestic investors and once again cause a surge in the dollar. Thus, the forex market is now focusing on May 7th, with the Fed and Copom, to determine the future interest rate curve and exchange rate orientation.

Tags: US, Production, markets, tariffs, China, exports, corn