Brazil and Commodities
Brazil is the largest country in South America. It occupies almost half of all of the territory of the continent of South America. With a population of over 200 million, it is the fifth largest country in the world and it has the world's seventh largest economy. It is the largest Portuguese-speaking nation in the world and the only one in the Americas. Brazil is a rich country in terms of natural resources; it is an important and major commodity-producing nation.
Brazil has a thriving mining industry, which accounts for almost 4% of the country's gross domestic product and employs approximately 6% of its population. The nation is also an important producer of energy. Perhaps Brazil's largest commodity output comes from the agricultural sector that employs 20% of Brazil's workforce. The climate in Brazil puts the nation in a unique position and makes the nation the largest producer in the world of several important agricultural staples.
The currency of Brazil, the real, is truly a commodity currency. As such, the value of the Brazilian real is highly correlated with commodity prices. During the secular bull market in commodities that began in around 2002, the value of the real soared. Recently, as commodity prices have moved lower so has the Brazilian currency. As the chart illustrates the value of the currency of the huge commodity producer more than doubled between 2002 and 2008. The global economic crisis of 2008 caused the real to move sharply lower, only to recover and make new highs in 2011 as the secular bull market in commodities peaked.
Since then the real has headed south, recently trading at the lowest level since 2004.
Brazil is a major player on the world commodity markets. Their production spans a number of different sectors:
The most significant mined commodity for the nation is iron ore, the chief ingredient in the manufacture of steel. Brazil is the third largest iron ore producing country in the world. The country is the world's thirteenth largest gold producer and a minor copper producer. When it comes to aluminum, Brazil is a major force on a global basis. The chief component of aluminum production is bauxite -- Brazil is the third largest producer in the world behind Australia and China and it has 10% of the world's bauxite reserves within its borders.
Brazil is the sixth largest producer of aluminum metal in the world.
Brazil is the world's ninth largest producer of crude oil. Populous Brazil is the sixth largest consumer of oil in the world. Over recent years, discoveries of energy reserves offshore could increase Brazil's presence as an oil producer and even as a producer of natural gas in the years ahead. Brazil is an important player in biofuels by virtue of its position as a huge producer of agricultural products. Due to its position in terms of sugar production, Brazil is a significant producer of sugar-based ethanol.
Brazil is the world's largest producer and exporter of sugar cane and a leading coffee producer. Brazil produces around 20% of the world's annual supply of sugar cane, which is around 50% more than India, the world's second largest producer. Brazil produces approximately one-third of the world's coffee beans. The nation is also the world's second largest producer of soybeans -- the United States is number one in this grain. These are just a few of the agricultural commodities that Brazil produces.
As one of the world's leading agricultural commodity producers, the weather in Brazil plays an important role in food prices around the world. A drought in Brazil in 2014 resulted in coffee prices more than doubling in just a few months. When it comes to raw material markets, Brazil is an important force on world markets.