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Viewing report
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Brazil Agribusiness Report Q4 2011
Business Monitor International, Sep 2011, Pages: 87
As prices have remained elevated by historical standards across the agricultural commodity complex (including coffee, sugar, grains, cattle, soybean and cocoa), we believe Brazilian farmers have had sufficient incentives to plant greater quantities, which will enable Brazil to maintain its dominant production and exporter position in most crops. Infrastructure improvements, such as the renovation of the Santos port, have prevented major congestion in sugar exports. However, transportation problems are still significant as the growth in infrastructure required to move Brazil's vast quantities of produce is lagging behind the growth in production itself. This could encourage farmers to sell more of their production domestically, reducing domestic prices but increasing global supply and prices.
Key Trends:
- Corn production growth to 2014/15: 42.3% to 79.8mn tonnes. This will mainly come from increasing yields, which will result from greater use of genetically modified (GM) corn seeds. Key growth drivers will be corn's use as livestock feed, which has been increasing steadily in recent years, and recent plans to develop corn-based ethanol production in Mato Grosso.
- Cheese consumption growth to 2015: 13.9% to 605,300 tonnes. The spread of fast food outlets should underpin a large portion of this. However, we expect Brazil to remain a net exporter of cheese as production growth will be even stronger.
- Poultry production growth to 2014/15: 37.9% to 17.0mn tonnes. This will come from production process improvements and strong gains in feed crops such as corn and soybean, making the input more affordable. Domestic and export demand will also serve as key drivers over the medium term.
- 2011 Real GDP Growth: 4.5% (down from 7.5% in 2010; predicted to average 5.4% from 2010 until 2015).
- Consumer Price Inflation: 7.2% year-on-year in August 2011 (up from 4.5% y-o-y in August 2010).
Industry Developments JBS posted a net loss of BRL180mn in Q211 and has been significantly underperforming other western hemisphere beef producers in recent quarters. In response to the disappointing figures, which were well below consensus estimates, the company has decided to relocate some of its meatpacking operations (particularly slaughtering and de-boning) from São Paulo to Mato Grosso do Sul to reduce its tax bill and achieve other savings through efficiency by roughly BRL200mn (US$125mn) per year. In places where the company has ceased operations, it said facilities would remain closed unless tax regimes were changed. The firm has also said that some plants where operations have shut down were going to be consolidated or relocated within the same state, largely because of proximity to existing operations.
In 2011/12, we have revised down our Brazilian sugar production forecast to 38.4mn tonnes, as sugarcane yields have disappointed thus far in the season. Production will remain fairly strong as new production facilities come online in Mato Grosso do Sul, Minas Gerais, Goias and Mato Grosso, although the actual number of facilities coming online should be less than in previous years owing to previously low prices and difficult credit conditions. Total sucrose content is expected to increase in 2011/12 to 47% of sugarcane (with the rest going towards ethanol production) after 45% in 2010/11. However, the Brazilian government has suggested that the country's ethanol blend could be lowered in order to encourage more sugarcane to be devoted to sugar production although this is not our core view at this stage.
BMI has revised up it sBrazilian 2010/11 soybean estimates 6% to 74.4mn tonnes, mainly on the back of good weather during the growing season. The production growth was led by centre-west and southern regions. In particular, the largest growing state Mato Grosso registered an 8% improvement year-on-year in 2010/11, mainly driven by higher yields but also a greater area planted. However, southern Parana state achieved the largest year-on-year growth among large producing states at 9%, mostly driven by higher yields. The output appears to have been largely unaffected by rains which delayed the harvest at various points, although it appears to have had a greater impact on the corn harvest (which follows soybeans).
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