The Brazilian Market is having better prices during its 2019 peak production season which, though not as good as the producers expected them to be, are still better than what this season started off from.
The State of São Paulo represents 64% of Brazilian production, standing out as the largest Brazilian producer of natural rubber.
In the 2017/2018 harvest, production was about 130,000 tons of dry rubber, 12% more than in the previous harvest (2016/17).
For the last 2 years in total, planted area growth was of 18.4%, reaching 133.3 thousand ha, bringing the total Brazilian Natural Rubber planted area to about 251 thousand ha. The average productivity for São Paulo is about 1,400 kg of dry rubber / ha.
According to the Institute of Agricultural Economics of São Paulo (IEA-SP), 65% of the State’s production is concentrated in four Rural Development Offices (in poruguese called EDRs) located in the north and northwest regions of the state of São Paulo
In terms of production, first is the EDR of São José do Rio Preto (28.9%), followed by General Salgado (14.9%), Votuporanga (12.5%) and Barretos (8.8%).
It is interesting to show that planted area is about the same ranking, with Rio Preto (25%), General Salgado (12%), Votuporanga 10% and Barretos (9%).
PEAK production season starts with better prices in 2019
The average monthly price received by the producer in the months of April and May is on the rise. The GEB10 Market Reference, calculated by the Association of Natural Rubber Producers and Processing Plants (APABOR), which serves as a basis for the commercial negotiations in the local Industry, increased by 7.8% in the two-month update of April and May.
The farm gate price negotiations are running in a range between R$ 2.20 to R $ 2.50 (USD0,5 – USD0,65) depending on the Dry Rubber Content.
In relation to the improvement in prices in the first months of 2019, two factors influenced this increase: international prices and the dólar Exchange rate.
In the case of international prices, the Report posted by ANRPC on April 2, 2019 showed a drop of about 1 million tons in world production in January.
For the same month the institution points to a rise of about another 1 million tons in consumption.
As a result, a feeling of lack of rubber, aggravated by the fact that the main producing countries are in wintering season, has blown future markets to a bullish setiment. The investor seems to be betting that the climatic uncertanties will further damage the production this year.
On the other hand, the dollar exchange rate in Brazil also accelerated, influenced by the political tensions and uncertainties related to the Pension System Reform in the country.
For the next few months the perspective is to maintain the current scenario, both in the dollar and in international prices. With this, reference the GEB 10 Mercado is expected to be at new high, which should favor more improvements in the farm gate pices still in this harvest season that begins its peak now and ends in the months of July and August.
For the second semester, the outlook is not so favorable. With the probable approval of the Pension System Reform and the start of the season in the main producing countries, the dollar exchange rate tends to fall and the international price should suffer a negative, pressured by the greater supply that will reach the markets.
For now is to take advantage of prices, which, if not ideal, are at least more rewarding, and the peak of the harvest is on its way.
The writer, a Market Analyst, is Project Manager post-graduate by FEA-RP/USP (University of São Paulo) and Executive Director of APABOR (São Paulo Producers and Processors Association).