The U.S. Federal Reserve’s speed in unwinding stimulus, the state of China’s real estate market and geopolitical jostling within OPEC are all important factors that drive commodity markets at the moment. You should not discount the importance of Brazilian welfare payments. The real has seen record trading in Brazil in recent months. This is due to President Jair Bolsonaro’s efforts to remove a fiscal tightropet and implement an anti-poverty programme before the 2022 elections.

The legislation that will allow passage of the measures, a relaunch of the Bolsa Familia cash welfare payments that Luiz Inacio Lula Da Silva introduced and that Bolsonaro would like to increase to 400 reais ($71 per month), have passed the lower house of Congress and are now moving through the Senate. It’s an extraordinary reversal politically. Bolsonaro’s key policy upon his election to power in 2018 was to reform the state pension system in order to plug budget deficits, and to regain Brazil’s investment-grade credit rating. Bolsonaro is abandoning his welfare program to gain investor confidence and regaining constitutional public spending caps. Brazil is now plagued by the highest number Covid-19 deaths since the U.S. The country’s commitment to fiscal restraint seems so weak that its more traditional economy minister, Paulo Guedes has become a market-moving indicator.

However, the wider global impact could be felt in commodity markets. The weakness of the real could help ease inflationary pressures in the global economy, along with signs of an easing in America’s supply-chain crisis and Chinese energy prices returning back to normal levels.

Brazil plays a significant role in many of the essential minerals and foodstuffs around the globe. Brazilian producers experience lower production costs when the currency is weaker. This makes their products more competitive and increases supply. In May, soybeans were at an all-time high of nine years. The cost of land is typically about 25% for Brazilian soybean farmers. However, unlike pesticides and fertilizers, which tend to rise with the dollar, the price of land doesn’t actually go up when the real falls. This is true for domestic spending, including tax and labor.

The current crop season’s production is expected to surpass 5 billion bushels. Corn prices, which also rose in May, are also expected to record new highs.

Similar situation exists for meat. According to the U.S. Department of Agriculture, Brazil is the largest exporter of chicken, beef, and third-largest of pork. All three will see increased production in the next year. According to the USDA, Brazil’s share in global trade will increase from 18% to 22% in 2017, to 2.66 million metric tonnes in 2022. This may not be the end of the story. Cattle take many years to mature and Brazil’s herd grows faster than its exports. The country has contributed four out of five cows to the global herd’s growth since 2017. This suggests that there will be more export growth in the future.