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Brazil Agribusiness Report Q2 2010
Business Monitor International, Feb 2010, Pages: 84
Brazil Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on Brazil's agribusiness service.
Our previous projection that the high sugar prices on the world market would lead to a rise in production of sugar as opposed to ethanol has started to play out. The latest figures for the 2009/10 harvest released by União da Indústria de Cana-de-açúcar (Brazilian Sugarcane Industry Association, Unica) indicate that between April 2009 and February 2010, ethanol accounted for 57% and sugar for 43% of sugarcane production, as opposed to 60% ethanol and 40% sugar in 2008/09. Sugarcane production was up by 6.6% on the same period in 2008/09, but ethanol declined by 7.3% to 23.1bn litres, in comparison to 24.9bn litres a year previously. Although the area planted for the 2009/10 harvest increased by an estimated 2.1% year-on-year (y-o-y), yield is expected to fall by 1.3% as production is hit by the adverse weather conditions. However, we expect the recent heavy rains to be beneficial for the 2011 harvest and forecast a rise in production to over 37mn tonnes.
Sugar prices remain high domestically and on the world market, despite the EU's announcement in January 2010 of an additional export of 500,000 tonnes of out-of-quota sugar. In February, representatives from the world's top three sugar producers, Brazil, Australia and Thailand, met WTO officials in Geneva to demand that the EU reverse the decision. In 2005, the three countries successfully appealed to the WTO against EU subsidies of sugar. On this occasion, however, they stopped short of taking further action and instead called for further talks with the EU and for more data explaining the rationale behind the additional exports.
2010 is expected to be a bumper year for soybean production, which is set to increase by 14% to 65.01mn tonnes. Good rains in late 2009 and early 2010 should help yields rise considerably from 2009 's output, with Instituto Brasileiro de Geografia e Estatística (IBGE) anticipating yields to increase by 9.4% to 2.87kg per hectare. However, the forecast large increases in the crop in Brazil and other major producers has already started to put downward pressure on prices. Prices declined in Q409 before going into freefall in January 2010, dropping by 13.2% to BRL36.9 per bag, the same level as September 2007, according to Centro de Estudos Avançados em Economia Aplicada (CEPEA). Prices on the international market also fell, partly as a result of lower demand from China, with soybean prices falling by 12.1% on the Chicago Board of Trade to USc914/bushel.
Brazil's coffee industry continues to suffer from the unfavourable weather conditions that damaged the 2009/2010 harvest. Production is expected to bounce back in 2010/2011 as the arabica trees again enter the higher yielding phase of their two-year cycle. In its first forecast of the year, released on January 7 2010, the crop forecasting agency of the Ministry of Agriculture, Conab, forecast an increased crop yield of 45.9-48.7mn bags, an increase of 17.7-25.2% y-o-y. Domestic coffee consumption remains strong and Brazil accounts for a sixth of the world's production. In 2008/09, domestic consumption grew by 4.1% yo- y to 18.11mn bags. Per capita consumption of roast coffee increased to 4.62kg per person, up from 4.51kg the previous year. In 2009, coffee consumption increased by 3.2% y-o-y, despite the contraction in the Brazilian economy. In 2009/10, we expect consumption to continue to increase as the Brazilian economy picks up and have forecast an increase of 2.9% y-o-y to reach 18.64mn bags.
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