We are ending September in an environment of expectations regarding weather conditions for the 2026/27 crop. The El Niño pattern is very well established, with excessive rainfall in Southern Brazil and delays in the Center-North. Excessive rainfall in the South is not yet a cause for concern, as it has provided planting windows, as occurred last week. In the North, the situation has also not yet become a serious problem, but the key period for soybean planting, in time to allow a good window for the 2027 second crop, is being pushed into October and November. While weather conditions in South America do not indicate a concerning factor for production, the external market remains above US$ 5.00/bushel on the Chicago Board of Trade, while the domestic market is seeking stabilization amid weak exports in the second half of the year. Until the summer crop harvest begins in February, the domestic market faces excessive holding by producers and a more extended long position among domestic consumers. If weather does not bring a more serious scenario for the 2027 second crop, all this retained supply and inventories could generate selling pressure ahead. The loss of export momentum reinforces this scenario, while weather expectations continue to provide support.
The shift in the U.S. Federal Reserve’s stance on monetary policy is changing the global financial market environment. The determination to bring inflation back to the 2% annual target by 2027 suggests higher interest rates and a slowdown in the economy. The issue is that the U.S. economy is at full employment, with strong economic growth and inflationary variables that may not be corrected through interest rates, such as higher oil prices, for example. The wars involving Russia and the Middle East may not have a short-term solution and may fail to produce the intended inflationary easing effects. Higher interest rates can slow the economy, but not prices linked to the energy market.
Therefore, the interest rate increase initiated in September is targeting another adjustment on October 28, at the next Fed meeting. One consequence of this environment is higher bond yields, particularly on long-term U.S. government debt, with repercussions in other markets such as Japan, which is showing its highest long-term bond yield in the past 24 years. Yields on five-year U.S. Treasuries reached 4.98% per year last week, the highest level since December 2023 and one of the highest rates of the past twenty years. These higher rates are expected to attract more capital into fixed-income and government securities, reducing liquidity in the economy and potentially leading to a moderation in the pace of growth and inflation.
This attraction of capital is generating another movement in the financial market: a stronger U.S. dollar. The Dollar Index in New York reached 101 points during the week, very close to technical resistance at 101.8 points. A stronger dollar affects other global currencies, particularly those of emerging markets, with greater depreciation risk for the Brazilian real. U.S. employment data this Friday and inflation data in the second week of the month should now provide indications as to whether the Fed will raise interest rates again in October or maintain them at current levels.
Brazil’s pre-election environment suggests an almost anarchic situation, as institutions appear to be losing control over events and shifting toward purely political positions. Last week, official inflation rose sharply to 0.7% for August/September. Higher interest rates abroad and inflation becoming more evident in domestic Brazilian prices should be the factors limiting any move by the Brazilian Central Bank to cut interest rates on November 4, at the next Copom meeting. Copom could even implement another 0.25% cut, but the foreign exchange market would price in the move, reflecting reduced capacity to attract capital and increasing inflationary risk.
For this reason, the real once again attempted to break through the R$ 5.22/US$ barrier, certainly with financial institutions providing support to contain the currency’s depreciation. How long these institutions will be able to contain the depreciation of the real amid the sharp decline in arbitrage is the key question for the end of 2026. The election result could accelerate or contain this movement, depending on the likely direction of economic policy going forward.
