{"id":68341,"date":"2015-02-19T11:36:11","date_gmt":"2015-02-19T16:36:11","guid":{"rendered":"http:\/\/countingpips.com\/?p=68341"},"modified":"2015-02-19T17:27:01","modified_gmt":"2015-02-19T22:27:01","slug":"drought-hurts-brazils-economy-helps-commodities","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/02\/drought-hurts-brazils-economy-helps-commodities\/","title":{"rendered":"Drought Hurts Brazil\u2019s Economy, Helps Commodities"},"content":{"rendered":"
February 19, 2015<\/div>
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By WallStreetDaily.com<\/span><\/a> \"Drought<\/p>\n

By Tim Maverick<\/a>, Commodities Correspondent<\/em><\/p>\n

S\u00e3o Paulo, Brazil was once nicknamed Cidade da Garoa, or the city of drizzle.<\/p>\n

But that name hasn\u2019t fit in years. The city of 20 million people is now the epicenter of Brazil\u2019s worst drought since the 1930s.<\/p>\n

The drought is a threat not only to the many agriculture commodities grown in the country, but also to Brazil\u2019s economy.<\/p>\n

A Drought for the Ages<\/h2>\n

The drought situation in Brazil is perilous.<\/p>

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S\u00e3o Paulo, the world\u2019s 12th<\/sup> biggest city and Brazil\u2019s economic center, gets its water from two reservoir networks \u2013 the Cantareira and the Alto Tiete. The reservoirs are nearly depleted at 6% and 15% capacity, respectively. And that\u2019s after the \u201cpeak\u201d of this year\u2019s rainy season.<\/p>\n

And while the country did get some rain recently, it is unlikely to put much of a dent into the reservoir capacity deficit.<\/p>\n

The country\u2019s southeastern states of Rio de Janiero, Minas Gerais, and Esp\u00edrito Santo, have been affected too. Already, 71% of S\u00e3o Paulo\u2019s residents and 36% of all Brazilians have faced problems with the water supply this year.<\/p>\n

And it\u2019s going to get worse\u2026<\/p>\n

Just a few short months ago, the central Brazilian government said water rationing wasn\u2019t necessary.<\/p>\n

But now, it says that it\u2019s likely that the country\u2019s three largest metropolitan areas \u2013 S\u00e3o Paulo, Rio de Janeiro, and Belo Horizonte, which includes more than 40 million people \u2013 will face some rationing.<\/p>\n

Those cities are joining 93 other cities in Brazil that have already instituted some water rationing.<\/p>\n

Water utility Sabesp <\/strong>(SBS<\/a>) predicts it may have to implement a drastic rationing plan, with five days every week of NO water access in the affected regions of the country!<\/p>\n

But wait, it gets worse\u2026<\/p>\n

Lifeblood of the Country Scare<\/h2>\n

You see, Brazil gets about 70% of its electricity from hydroelectric dams. And as the water runs lower, less power will be generated.<\/p>\n

In Brazil\u2019s southeast and central heartland, the main hydroelectric reservoirs are at a mere 17% capacity. That could<\/em> mean electricity rationing is just around the corner, too\u2026<\/p>\n

During a less severe drought in 2001, the government ordered a 20% cut in electric consumption.<\/p>\n

The overall effect of electricity rationing on the Brazilian economy<\/a>, which is already on the ropes, may be drastic, as the affected region accounts for 60% of the country\u2019s GDP.<\/p>\n

Brazil\u2019s once-robust economy was already forecast to post zero growth in 2015. Now, the effects of water and electric rationing may lop 1% to 2% off of that, throwing the economy into a recession.<\/p>\n

Inflation, already at 7%, could climb, too, as both Brazil\u2019s citizens and companies face higher costs for basic necessities.<\/p>\n

A negative GDP is obviously bad news for holders of individual Brazilian stocks or exchange-traded funds that invest in a basket of Brazilian stocks, such as the iShares MSCI Brazil Capped ETF <\/strong>(EWZ<\/a>).<\/p>\n

But it\u2019s not all bad news\u2026<\/p>\n

Rising Through the Dust<\/h2>\n

The drought it expected to push the price of certain commodities way up.<\/p>\n

As I\u2019ve detailed before, the output of some crops, such as Arabica coffee<\/a>, will definitely be hit. In 2014, Brazil\u2019s drought caused Arabica coffee prices to spike around 50%, while other commodities were falling in price.<\/p>\n

This year coffee outputs will be affected once again. In the coffee-growing region of Minas Gerais, the government has already asked that water usage be cut by 30%. This is bad news since that region alone accounts for 50% of Brazil\u2019s coffee production.<\/p>\n

The yield this year for Arabica coffee is expected to be about 40 million, 132-pound bags at best. That would be down 12% from 2014. And last year\u2019s smaller crop already left the country\u2019s inventory of coffee at levels not seen in a decade.<\/p>\n

The Brazilian drought is sure to impact the world\u2019s biggest producer of sugar cane, too. Especially since roughly 90% of the country\u2019s sugar is grown in the drought-stricken regions.<\/p>\n

Already, the drought lowered Brazil\u2019s sugar exports to a six-year low. According to RCMA Group, the ongoing drought may knock off about 10% of the country\u2019s sugar output. This will likely cause the global sugar industry\u2019s first supply deficit in five years and raise prices.<\/p>\n

Soybeans will also be affected. Brazil is now the world\u2019s biggest producer of soybeans, and forecasts of a harvest of 95 million tons is being downgraded rapidly to just 89 million tons.<\/p>\n

As the worst drought in Brazil for 80 years continues, certain commodities are certain to get a boost, even as the economy becomes sluggish.<\/p>\n

And \u201cthe chase\u201d continues,<\/p>\n

Tim Maverick<\/p>\n

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The post Drought Hurts Brazil\u2019s Economy, Helps Commodities<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

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By WallStreetDaily.com By Tim Maverick, Commodities Correspondent S\u00e3o Paulo, Brazil was once nicknamed Cidade da Garoa, or the city of drizzle. But that name hasn\u2019t fit in years. The city of 20 million people is now the epicenter of Brazil\u2019s worst drought since the 1930s. The drought is a threat not only to the many […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-68341","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/68341","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=68341"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/68341\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=68341"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=68341"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=68341"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}