Porto Alegre, 19th March, 2026 – The theory that a situation of rising energy markets and/or war favors Brazilian agribusiness cannot be associated with positive results in 2026. The situation of Brazilian agribusiness is extremely difficult this year, with sky-high interest rates and an overvalued exchange rate, signaling strong difficulty for the sector to finance the 2026/27 crop. Now, the sharp rise in oil due to the war in Iran suggests consequent price increases for some commodities, such as soybean oil and ethanol. This is occurring and provides some degree of price improvement in the international environment with consequences for the domestic market. However, the situation worsens when freight costs surge, including with risk of regional shortages, and price increases on the Chicago Board of Trade are neutralized by declining premiums in South America. Operating margins this year are very tight, if not negative, and this additional harvest cost impacts Brazilian agribusiness in a problematic way. Even though we are not currently in the fertilizer purchasing phase, production costs are rising sharply, particularly for corn, if the war persists for a long time. The need for interest rate cuts and exchange rate adjustment to restore a less problematic balance for the sector appears unavoidable.
Oil posted a week of strong volatility, following the second week of war. News flow, information dynamics and real data initially favor more optimistic signals, followed by reality checks. The key point remains the Strait of Hormuz, which was signaled as open, but due to attacks on commercial vessels has remained without proper commercial flow. Entering the third week of war, the environment remains tense, but does not appear likely to change until there is a shift in the Iranian government.
Meanwhile, domestic fuel prices are rising sharply, given a margin lag situation that limits domestic production and distribution. There is a risk of shortages, as there were already negative operating margins in the sector even before the war. The policy of not passing through price volatility results in shortages. There is a risk of a truck drivers’ strike in the short term. The government is attempting to balance the situation by reducing domestic taxes, but taxing oil exports. The measure has not balanced the domestic situation and has not prevented a rise in diesel prices during the week.
The combination of extremely high domestic interest rates, an overvalued exchange rate, and now rising fuel prices is tragic for all sectors of the economy, but in the midst of the summer crop harvest, the situation becomes unsustainable for Brazilian agribusiness. In this environment, while prices on the Chicago Board of Trade are rising and freight conditions are difficult, China imposes an absurd rule that primarily affects Brazilian soybean exports. Zero tolerance for quarantined seeds and plants in soybean shipments to China had already been a requirement for some years. Some trading companies have halted the flow of new purchases for China as a destination, for safety regarding shipment flows. However, it must be understood that this situation is not due to trading companies, but rather to China and the acceptance of the rule by the Brazilian government. Is this an economic or phytosanitary decision? Considering that other importers do not impose the same rule? The decision could result in a shift from Brazilian soybean shipments to U.S. soybeans.
Amid the war, the Brazilian market seems to have overlooked some indicators. U.S. inflation came in stable in February, while unemployment showed a slight decline. However, GDP growth slowed in the last four-month period to 0.7%, with annual growth of 2.2%, which could be seen as an indicator for a possible interest rate cut at the upcoming meeting on the 18th. With the sharp rise in oil and the consequent inflation risk, however, a rate cut decision appears difficult at this moment.
In Brazil, the market seems unwilling to acknowledge the inflation reality. Inflation in January came in at 0.33%, double that of January 2025. In February, inflation reached 0.7%, also double the level recorded in the same month of 2025. In March, fuel price increases will undoubtedly bring inflation above 2025 levels. If there was a bias toward cutting the Selic rate at the meeting on the 18th, developments since the January meeting now point toward maintaining the Selic rate. If this inflationary scenario persists, the annual target will be breached, and it would not be surprising if, instead of cutting rates, further increases become necessary.
The Brazilian real has remained relatively stable amid all developments, supported by high interest rate arbitrage versus external markets. In other words, high interest rates are currently the only exchange rate anchor. Some depreciation was observed during the week due to a new diplomatic conflict with the United States and the rise of the Dollar Index above 100 points. A decision to cut the Selic now could lead to further short-term currency depreciation.
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