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Brazil Agribusiness Report Q1 2012
Business Monitor International, Jan 2012, Pages: 111
Business Monitor International's 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.
- Use BMI's independent 5-year industry forecasts to test other views - a key input for successful planning in dynamic agribusiness markets.
- Apply BMI's medium term commodity price forecasts to assist with budgetary planning and the identification of investment opportunities and potential risks
- Exploit latest competitive intelligence on your competitors and peers in Asia, Europe, Latin America, the Middle East and Africa through BMIs company rankings and analysis.
BMI View: On grains, high corn prices encouraging plantings as well as improved seeds should provide the country with a strong harvest in 2011/12, in spite of weather problems. On the contrary, sugar, soybean and coffee output will be hampered by subdued yields as bad weather conditions and ageing plants slightly affect output. In this context, BMI expect recent investment into sugarcane replanting and infrastructure improvements, such as the renovation of the Santos port, to help output for these to recover strongly over BMIs forecast period. This should also enable Brazil to remain the world's leader in agricultural production and exports.
Key Trends:
- Soybean production growth to 2015/16: 32.9% to 100.3mn tonnes. This will be mainly due to improving yields, a greater area planted and increasing domestic demand, particularly for soybeans as an alternative fuel and for poultry feed.
- Poultry consumption growth to 2016: 22.3% to 11.6mn 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.
- Sugar production growth to 2015/16: 6.6% to 42.0mn tonnes. This is because of impressive production potential coming from a vast area devoted to sugarcane in the country. Also, the government announced in May a specific credit line for independent growers to replant cane.
- 2012 Real GDP Growth: 3.9% (up from 3.0% in 2011; predicted to average 4.2% from 2011 until 2016).
- Consumer Price Inflation: 5.8% year-on-year in November 2011 (down from 8.9% y-o-y in November 2010).
Industry Developments
BMI maintain their bullish forecast for Brazilian 2012/13 coffee production as the country enters the upyear in its biennial cycle and on the back of good growing conditions. Indeed, the country's coffee output decreased 9.0% year-on-year (y-o-y) to 43.5mn bags in 2011/12, a 10.1% improvement on the previous down-year (2009/10). Similarly, BMI expect Brazilian coffee output in 2012/13 to be stronger than the previous up-year (2010/11). BMI forecast output to come in at 55.0mn bags in 2012/13, 14.3% higher than the previous up-year. This is because rains were expected to reach coffee-growing regions of Minas Gerais and São Paulo states between October 2 and 4, which should have prompted coffee tree flowering and boosted output for the 2012/13 season starting in May 2012. Also, farmers have increased plantings and thus boosted yields in order to take advantage of high coffee prices.
Brazilian soybean output, which has risen dramatically in recent years due to greater use of genetically modified seeds, was already forecast to decline in 2011/12. This is mainly on the back of many farmers choosing to plant corn over soybean due to price competitiveness. Corn prices are traditionally lower than soybean prices due to higher yields per hectare, which mitigate the fact that (as recently as 2010) corn production costs per hectare were roughly 25% higher than soybean prices in southern Parana, a key growing state for both corn and soybean. It is the second largest soybean growing state and the largest corn growing state. Corn has been outperforming to the extent that the corn/soybean ratio has favoured corn more strongly only twice in the last 15 years. Consequently, the area dedicated to soybean in Brazil is forecast to fall in 2011/12 for the first time since 2005/06.
Increased investment in cane replanting should benefit major Brazilian sugar producers like Cosan in the long term. The company's share price has been on the decline since December 2010, but it has made some important progress upwards since September. BMI believe this should continue as sugarcane replacement enables yields to improve in the coming years. Also, because the company is so diversified (sugar production only represented 28.8% of Cosan's revenues in 2009), BMI do not expect moderating sugar prices to impact its profitability in the long term and therefore prevent its share price maintaining an uptrend in the medium term.
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