Dollar, interest rates and commodities: the impact of the macro triad on agribusiness margins

The price formation and profitability of global agribusiness respond directly to the behavior of the macroeconomy. The worsening of geopolitical tensions between the United States and Iran has increased risk aversion in the financial market, supporting indicators such as the volatility index (VIX) and boosting traditional safe-haven assets such as gold and the energy complex.

At the same time, the Brazilian domestic environment reflects the effects of maintaining the Selic rate at high levels, which acts as an important attraction for foreign capital. This flow of funds corroborates the relative appreciation of the Real and contributes to the dynamics of global weakening of the American currency. This set of variables directly affects the tripod that determines the rural producer's revenue: the quotations on the Chicago Stock Exchange (CBOT), the exchange rate and the port premium (basis). Corporate planning therefore requires integrated monitoring that goes beyond traditional climate analysis.

Follow more detailed analysis in this article:

• The pricing tripod: how the macro dictates billing in the field
• The practical challenge of dollar devaluation at the margins
• High VIX and the volatility caused by funds
• Cost inflation: the direct connection between energy and the producer's pocket
• More expensive oil, high diesel and the pressure on urea
• The thesis of high interest rates and the biofuels market
• Role of risk management and Hedgepoint market intelligence
• Join the Hedgepoint webinar: macro scenario and forex market

The pricing tripod: how the macro dictates billing in the field

The final price received for the commercialization of grains is based on the combination of international quotations on the stock exchange, the currency conversion rate and the physical premiums practiced in the ports. Global macroeconomic instabilities exert specific pressures on each of these variables, reconfiguring the sector's profitability levels.

The practical challenge of dollar devaluation at the margins

The movement of exchange rate weakening of the American currency directly reduces the turnover in local currency obtained from agricultural exports. In practice, even when quotations on the Chicago Stock Exchange operate at stable or sustained levels, the relative appreciation of the Brazilian currency means that each dollar invoiced results in fewer Reais in the final conversion.

This movement squeezes the producer's operating margins and reduces the relative competitiveness of the Brazilian grain in the foreign market. The main counterbalance to this loss of revenue occurs at the end of imported inputs, since fertilizers, pesticides and machinery tend to register price declines in Reais at the purchase counter, temporarily alleviating the cost of production.

High VIX and the volatility caused by funds

The intensification of logistical and political tensions in the Middle East caused the rise of the VIX index, considered the indicator of volatility and risk aversion in the global market. The advance of this indicator causes large investment funds to liquidate or reduce their long positions in agricultural commodities to direct capital towards safe havens, such as gold and energy assets.

For the production chain, this withdrawal of liquidity generates more intense and unpredictable oscillations in the future screens of the CBOT. In addition, the lower predictability widens the difference between the buy and sell prices (spreads), making origination difficult and slowing down the pace of business in the physical market.

Cost inflation: the direct connection between energy and the producer's pocket

Global macroeconomic indicators also act as vectors of cost inflation for the crop, operating as a gear that connects the oil sector directly to the daily expenses of the field.

More expensive oil, high diesel and the pressure on urea

The escalation in the price of a barrel of oil puts pressure on domestic logistics costs through the increase in the price of diesel fuel and road and sea freight rates. This increase in energy prices affects the nitrogen fertilizer industry in parallel, especially urea.

The global chemical manufacturing and synthesis of urea is directly dependent on international prices for natural gas and petrochemical refining. In this way, the cost shock in the energy complex inflates the value per hectare at the input counter, contracting the producer's financial margins even if the grains register nominal appreciation.

The thesis of high interest rates and the biofuels market

The appreciated level of oil provides economic support to the renewable fuel market, sustaining industrial demand for corn, soybeans and ethanol. However, the market is influenced by the prospect that the US central bank (Federal Reserve) will keep interest rates high for a longer period, a dynamic globally characterized as "Higher for Longer".

Didactically, high interest rates in the United States raise the cost of international financing, make global credit more expensive for trading companies and exporters to carry inventories, and slow down world economic growth, limiting the potential demand and prices of commodities in the long term.

Role of risk management and Hedgepoint market intelligence

An economic environment where American interest rates, the national exchange rate and energy inputs directly determine the net margin of the crop requires the evolution of traditional marketing strategies. The exclusive dependence on sales in the physical market exposes the revenue to variables that operate outside the producer's control.

Keep following the Hedgepoint HUB to understand the evolution of macroeconomic variables in real time and access technical analysis that underpins the best financial protection decisions.