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Brazil Agribusiness Report Q1 2011
Business Monitor International, Dec 2010, Pages: 74
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.
BMI View
The effects of La Niña, which was expected to bring dry weather to southern Brazil, have so far been limited. However, there are concerns over marginal price differences and crop distribution that could lead to further downward revisions in grain crops. For a sector that is heavily relying on increasing grain production, both for exports and downstream supply (such as livestock which uses the feed), output will come under greater scrutiny. Softs production is expected to show strong increases over the medium term. However, the ability for that output to be exported in a timely manner will remain a dominant theme until significant port infrastructure improvements are completed.
Key Views
- Soybean production growth to 2014/15: 26% to 86mn tonnes. This will be mainly due to improving yields, a greater area planted and increasing domestic demand, particularly for soybeans as an alternative fuel, as well as for poultry feed.
- Corn consumption growth to 2015: 19% to 54mn tonnes. Increasing yields will come from greater use of genetically modified corn seeds. Another key growth driver will be corn's use as livestock feed, which has been increasing steadily in recent years.
- Sugar production growth to 2014/15: 26% to 44mn tonnes. Investment in research should lead to higher yields and the area under production keeps expanding. The area of land used for agriculture in Brazil is still growing and some of this is likely to go to sugar cane given the strong demand for sugar and ethanol.
- 2010 Real GDP Growth: 6% (up from -0.2% in 2009; predicted to average 4.3% from 2010 until 2015).
- Consumer Price Inflation: 5.2% year-on-year in October 2010 (up from 4.2% y-o-y in October, 2009).
Industry Developments
Consumption of fluid milk and processed dairy products in Brazil is fairly low by developed market standards, but is forecast to grow considerably in the coming years as rising incomes and improved infrastructure bring dairy products within reach of more of the population. The spread of modern retail out from the richer south into the north and north east will also boost dairy goods sales. However, the remainder will likely be sold informally in independent shops or at the side of the road. Milk sold informally will often not have been pasteurised or been subject to government quality checks, leading to an increased risk of contaminated dairy products.
Brazilian sugar giant Cosan's investment into expanding its private terminals at Santos - Brazil's largest port and responsible for most of the country's sugar exports - could see more sugar exported in 2011/12 by preventing the export delays seen in 2010/11. However, there is a risk that any delays to the project could see terminal capacity limited during the harvest (depending how the expansion is conducted), which would mean that there is even less sugar sitting in the terminals, and thus prices could soar well beyond their current levels as sugar throughput is reduced and the queue of ships increases.
On October 8, we revised down our Brazilian corn forecast by 15% to 52mn tonnes for the 2010/11 season, as the area planted is expected to fall due to more acreage being devoted to soybean production. Elevated soybean prices and continued Chinese demand have persuaded farmers to plant soy instead. The decrease in Brazilian production should not have an especially significant impact on the global corn market over the short term, as record US output should keep the global market well supplied. Over the medium term, Brazil's decrease further validates our long-held view of corn as an outperformer within the grains complex.
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