Trade Talk

March 24, 2022

Carla Mayara Borges de Lima: Carla Mayara Borges de Lima on tackling a Brazilian market rocked by obstacles on all sides

Luke Wilkinson


At a glance

A lot of things have changed since you spoke with the GPC last year, what have been the biggest challenges in the Brazilian pulse market?

Last year the biggest difficulty was finding ways to promote pulse varieties among the producers. Soybeans are not competitive with pulses as almost every farmer in Brazil sows soybeans in the first season. The second season is where we now have competition for acreage. We used to have low prices for corn which sometimes made black beans, pinto beans or peas more interesting for producers depending on production costs and sale prices. But since corn prices have more than doubled, now we have competition for space that could be taken by pulses. 
As a result, we had to seed pulses in the window after corn. Where corn was too risky to seed, that left space for pulses that have lower investment needs, like mung beans. We often found it difficult to justify seeding pulses in certain places, as even crops like millet became competition to mung bean and cowpea acreage. Millet has good production levels and had decent prices, so producers weren't as convinced to seed pulses as they had been previously.

What is the situation with cowpeas at the moment?

Cowpeas were a good option this year because of internal prices rather than any international price changes. Generally, the pinto bean has higher rates of consumption in Brazil, however, the prices of pinto beans had shot up so consumers were opting for cowpeas instead. They require a lot less rain, which was ideal as we have been left with areas which did not have enough water to grow corn.

What are the typical destinations for cowpea exports?

Mostly India and Pakistan. Pakistan pays less for a slightly lower quality cowpea, and India pays more for the higher quality and will only tend to buy if the quality is good.

How do things look for pulses this year in Brazil?

Honestly, I think competition for acreage this year could be even worse for pulses as soybean season was earlier, leaving even more acreage for corn. The space is not only bigger but it’s easier to sow corn on, so space for pulses is likely to shrink. Talking to the producers, honestly we’re expecting a much lower production of every kind of food: soy beans, pulses - everything. We have seen very severe drought from the southern center of Brazil right down to the deep south.
To use soy beans as an example of the expected changes, in our area the land usually produces around 3.6 tonnes per hectare, but now they are producing around 0.9 tons per hectare, so it is a really drastic cut in production. The amount of rainfall was the same in the very south, so the numbers will be similar. In terms of beans, the most badly affected by the drought was the Carioca, or pinto bean. Cowpeas are mainly produced in the center and the north east where the weather has been relatively normal, so they haven't taken as big a hit. 
With mung beans, I'm making cuts of up to 25% because prices just aren't going up enough to make it viable. When you consider that shipping freight used to cost $1500 but it now costs $3500, with mung bean prices at most $850/950 per ton, it doesn't pay off for us nor the producers.

The drought has clearly been extremely serious. It's been reported that Brazil has had the lowest rainfall in 91 years, with reservoirs under 20% of capacity. What effect will this have on the costs of irrigation, electricity and other inputs? How worried are producers about these rising costs?

We are very worried about it here; not so much about the irrigation costs as in Brazil we don't have to pay for water, but we do have to pay for energy. Energy prices are rising significantly - in my state, Mato Grosso, the governor is even charging tax on solar energy.
The most challenging cost rise has definitely been in fertilizers as Brazil is around 90% dependent on imports of fertilizers. Now, with the war in Ukraine, every farmer is concerned about the possibility of not getting the fertilizers from their Russian providers. Historically, fertilizer prices have always been high but if you look at the future markets for the upcoming season, the prices are going to remain high. That's a concern.

What could be some alternative sources of fertilizer? 

There aren’t too many options. There is some contact with Iran and our agriculture minister was recently in Canada trying to negotiate deals to bring in fertilizer imports. I know there's also an internal effort to explore the quantity of fertilizer we can produce internally but that is a plan five years from now - until then we will be relying on imports.
Our president was in Russia recently and was assured that our supply of fertilizer won't be affected but obviously the removal of Russia from the SWIFT system may complicate things. I don't know how companies are going to pay for the product. The main issue is the price, as the quotations we are receiving now are simply unpayable.
For now, we are seeing farmers using an absolute minimum of fertilizer on the fields, which will inevitably lead to lower production for next year.

If fertilizer prices remain high, could we see any effects on pulse acreage?

Well, there is a lot of time to go before next year but what could happen is that we see a reduction in corn production because corn requires large amounts of fertilizer. This would open up some acreage for lower investment crops such as mung beans, cowpeas or sesame. That said, it's still very hypothetical, so I can't say that that would happen for sure.

If the demand for soy continues to rise, what effect will this have on producers' decisions to dedicate land to it? How will this continued rise affect pulses?

It generally always depends on price comparison but sometimes it’s not so mathematical; it can also depend on which crops compliment one another. For example, if a producer grows cotton in his second season, he might like to sow black beans or red kidney because these pulses grow faster than soybeans. However, with high-investment beans such as cranberry, black and red kidney, soy beans will always compete with them. Right now soybeans are liquid - easy to sell. Selling them doesn't depend on quality or color so producers love to plant them.


China has claimed to be pushing for self-sufficiency with regards to soybeans, hoping to plant up to 40% more soy themselves over the coming years. Do you expect China to become self-sufficient?

We are used to this kind of news coming out of China! I think it's designed to make the market a little bit scared. Every year they talk about more self-sufficiency, then every year they keep buying more and more so, in my opinion, there is no way they could be self-sufficient, short of buying a lot of land in Africa and producing there. I'm not in the tiniest bit worried about the possibility of Chinese self-sufficiency.

You mentioned the rise in shipping costs earlier, do you expect the Brazilian government to follow in the footsteps of the United States and create tighter regulations on shipping carriers?

I hope the Brazilian government doesn't take any action because we are not as powerful as the US, especially in the shipping sector. We don't have the consumer market that the United States has for Imports, which is a very important factor for attracting containers here that can then be used for exports. Putting more controls would mean that shipments wouldn't come anymore, and the price would become even worse.
We have a Conservative government here right now so I don't see them doing anything like that. A more left-wing government might consider things like that but I hope that won't be the case.

How do you see the Brazilian real behaving in comparison to the dollar this year? What effect will any changes have for producers?

I expect it to remain weak but it’s stronger than last year. Now we have around five reals to $1. Last year and at the beginning of this year we reached 5.75 reals, which was extremely weak - it was better for us in terms of buying from the producers, who themselves were charging very high prices to origin but now it's more complicated because the producers had got used to charging those higher prices.
Things don't seem too bad right now because we have higher interest rates. Even now, the government is raising a 10.5% basic rate up by at least 1.2% to 11.5% (Current rate as of 3/16/22 is 11.75%), which will mean I return a foreign capital because we will become an interesting country to invest in. However, things can change very quickly - money can withdraw from the country again, especially as we get closer to our elections. If the market doesn't like the pre-election polls, for example, then any influx of money can disappear. 
Last year our interest rate was 2% and this year it's 12% so it is a 10% difference which is a very important consideration but, in the end, I don't see the real going lower than 5 R$ to $1.