(Oct 26): Soybean futures fell to a two-month low in Chicago, while coffee and sugar slumped as President Luiz Inácio Lula da Silva’s surprise election win in Brazil hit the nation’s currency, boosting export prospects for the commodity powerhouse.
 
Lula won a fourth term, defeating Flávio Bolsonaro in a political upset that comes as a setback to investors who had backed his rival to rein in the country’s deficit. Brazilian markets are heading for a rout when local trading begins with a currency derivatives contract on the CME exchange showing the real at 5.60 a dollar, which implies a 12% plunge from Friday’s close. Trading on the real opens at 8am New York time.

A weaker real boosts the competitiveness of Brazilian produce, encouraging exports as farmers receive more local currency for their crops. As Brazil is the world’s biggest exporter of sugar, coffee and soy, that’s bearish for prices.

The most-actively traded soybean contract on the Chicago Board of Trade dropped as much as 1.7% to the lowest since late August. Lula’s emphasis on pragmatic engagement with China could further entrench Brazil’s dominance as the Asian nation’s top soybean supplier and erode the US’s share of the world’s biggest soybean import market.

Brazil has increasingly taken more market share in China, accounting for nearly 80% of its imports in the first nine months of the year, despite Beijing’s trade deal with the US, its No 2 supplier. At the same time, China has boosted investment in the South American country’s port infrastructure, including terminals at Santos built by top crop trader Cofco Corp.

“Lula is pro exports of beans to China, so that is bearish US soybeans if Brazil can fulfill more of China’s needs,” said Joe Davis, director of commodity sales at Futures International LLC.

The weakness spilled over into edible oils, with soyoil futures dropping as much as 1.2% in Chicago and palm oil falling as much as 1.1% in Kuala Lumpur, snapping a two-day advance. Palm oil typically tracks soyoil because they compete for many of the same food and biofuel markets.

Elevated Malaysian inventories also weighed on the market despite an improvement in export demand, according to Tasvinderjit Singh, director and head of futures at CGS International Futures Malaysia.

Sugar and coffee futures also dropped when trading opened on Monday. The most-actively traded sugar contract fell as much as 3.6%, the most in over a month, while arabica coffee dropped as much as 3.3%. Robusta fell to a two-year low.

The move is a “simple technical reaction” to the expected currency move, according to Arnaud Lorioz, chief executive officer of Paris-based brokerage Deepcore. “The market is saying the real will favour more exports from sugar producers in Brazil.”

Lula’s re-election brings his nation’s relationship with the US into question, given his ideological differences with President Donald Trump. In July, the US president hit Brazil with a 25% tariff, but Trump has also praised Lula’s intelligence and found him to be a “good man”.

The way the relationship between the two leaders develops could have longer-term impacts on agricultural markets, said Carlos Mera, head of agricultural commodities research at Rabobank. “The US can impose a number of measures on countries that they see as enemies,” he added.

Prices:

Uploaded by Felyx Teoh