Drought in the USA: agricultural prices and implications for Brazil

Abstract

The severe drought that occurred in the United States during the grain harvest in 2012 has seriously affected the international agricultural market. Its most significant effect was an increase in international prices for maize, soybeans and wheat. Meat prices decreased but are expected to increase in the next six months. Price increase in the international market is a consequence of the fall in supply as a result mainly of the drought in the U.S., the increase in demand, low stocks, and, to some extent, financialization of agricultural markets. Although such scenario is a problem for many countries, for Brazil, it is the opportunity to increase its share in the global market for those commodities and to become an important producer and exporter of soybean, maize and meat. To achieve leadership in the world market, Brazil needs to move forward regarding its agricultural policy, reduce the “Brazil Cost”, and improve its international relations to ensure its competitiveness in an environment of increasing financialization of agricultural markets. Despite the fact that Brazil has made progress in reducing the Brazil Cost and in improving its international trade, further efforts are necessary to increase its competitiveness in the long term, such as improving infrastructure and logistics.