Agrimoney.com, March 4th, 2016
The Brazilian real surged to a six-month high on Friday, on the news that former president Lula de Silva was detained for questioning in a largescale corruption investigation.
The strength of the real is bullish for agricultural commodities, particularly in coffee and sugar, of which Brazil is the world’s top exporter, as it means that sellers will not accept such low prices.
This rally in the real, which came in tandem with a bull-run on Brazilian equities, appeared to be the counterintuitive result of a corruption probe into the ruling party, which has lifted hopes of a regime change.
Political upheaval
Former president de Silva was briefly detained for questioning on Friday, over evidence that he had received cash and property from the state-owned oil company Petrobras.
This is the latest development in a massive corruption investigation, which threatens to bring down the government, a prospect that many market participants seem to find a welcome one.
There are reports that president Dilma Rousseff has been named in the case by a senator.
The allegations against Ms Rousseff will hardly support her in her fight against impeachment, over allegations that she broke budget rules in the run up to the last election.
Stock index surges
Markets have reacted positively to the idea of Ms Rousseff’s removal, and a receding possibility of a return to the president by the popular Mr de Silva.
It appears that speculators are betting on the possibility that the ruling Workers Party will be replaced by government that is more pro-business, and more ready to cut public spending.
Sao Paolo’s Bovespa stock index surged more than 5% at one point, trading up 3.7% in early afternoon deals.
Currency boom
And the Brazilian currency extended its rally on the news.
The real has already been gaining ground, after some better than expected trade data, as well as ideas that the Central Bank will keep interest
The real rose as much as 3.3% against the dollar on Friday, taking gains to 9% in just four days
The currency trimmed gains, a little, later in the session, trading up 2.1% against the dollar in afternoon deals, at just over R$3.7 to the dollar, the strongest level since September of last year.
Ag futures support
A stronger currency in the agricultural giant is supportive for dollar denominated ag commodity prices.
As well as being the top-ranked sugar and coffee exporter, Brazil is a major corn and soybean grower.
The recent strength in the Brazilian real has prompted significant short covering in the soybean complex,” said Darrell Holaday, of US broker Country Futures.
May soybean futures in Chicago were up 1.4%, at $8.75 ¾ a bushel in afternoon deals.
May corn futures were up 0.1%, at $3.54 a bushel.
Softs support
“News of positive developments in the ongoing Petrobras/Presidential impeachment were warmly received by the markets,” said Thomas Kujawa, co-head of softs at Sucden Financial.
“The real chart is indicating further strength following on from yesterday’s price action and perhaps this ally of the sugar bears is turning,” he said, referring to the bearish effect that the previous real weakness had on sugar prices.
March raw sugar futures in New York reached a six-month high, although they trimmed gains, a little, trading at 14.81 cents a pound, down 0.2% on the day, in afternoon deals.Â
And May white sugar futures in London were up 1.2%, at $425.80 a tonne.
Coffee showed more strength, particularly arabica, Brazil’s main crop.
May arabica coffee futures in London surged 2.6%, to 120.90 cents a pound
