Lula win sinks crop futures, Spanish and Chilean stocks

President Luiz Inácio Lula da Silva's surprise re-election sent Brazil's currency sharply lower on Monday, Oct. 26. The drop pulled down futures for soybeans, coffee and sugar, the crops Brazil exports most. Companies abroad with large Brazilian businesses also fell, from Spain's Ibex 35 to the Santiago stock exchange.

Lula beat Senator Flávio Bolsonaro with about 51.8% of the vote, according to Brazil's electoral court as reported by AP. No candidate had come back from a first-round loss to win a runoff since 1989. Markets had bet on a Bolsonaro victory. Reuters reported that the real (USD/BRL) suffered one of its biggest daily drops on record, and the Bovespa had its worst day since 1998.farmprogress.com+1

Crops slide on export outlook

A weaker real makes Brazilian crops cheaper on world markets and pays farmers more in local currency, so they have a reason to export more. Brazil is the world's top exporter of soy, coffee and sugar, so a weaker real tends to push their prices down. Bloomberg reporting carried by Farm Progress said soybean futures on the Chicago Board of Trade CME Group Inc. ↗ 0.77% fell to a two-month low. Arabica coffee and sugar also dropped, and robusta coffee hit a two-year low. Soyoil and Malaysian palm oil fell as well.farmprogress.com

"Lula is pro exports of beans to China, so that is bearish U.S. soybeans if Brazil can fulfill more of China's needs," said Joe Davis of Futures International, per the same report. In the first nine months of the year, Brazil supplied nearly 80% of China's soybean imports.farmprogress.com

Madrid and Santiago feel the hit

In Madrid, Telefónica ↘ 2.59%, Banco Santander ↘ 3.66% and Mapfre fell sharply at the open, Dow Jones Newswires reported via MarketScreener. Bankinter estimates that Brazil makes up about 35% of Telefónica's EBITDA, about 25% of Mapfre's, about 17% of Iberdrola's and about 15% of Santander's. Brazil is Santander's second-largest market.es.marketscreener.com

In Chile, Latam Airlines ↘ 6.25% and Enel Américas led early losses, La Tercera reported. Retailer Cencosud and pulp maker CMPC Empresas CMPC S.A. also fell. Brazil accounts for about 35% of CMPC's total assets.latercera.com

Unwinding the Bolsonaro bet

Analysts said much of the selling came from investors closing out bets they had made on a Bolsonaro win. "Much of today's selling reflects a desire to unwind the risk of positions taken previously ahead of a Bolsonaro victory, rather than a new valuation of Lula's policies," XTB España said, per MarketScreener. Thierry Larose of Vontobel said Brazil's central bank and Finance Ministry have plenty of room to keep the adjustment from becoming chaotic.es.marketscreener.com

Questions about U.S. relations remain open. Rabobank's Carlos Mera warned that "the U.S. can impose a number of measures on countries that they see as enemies," Farm Progress reported.farmprogress.com