MONTHLY AGRIBUSINESS BRAZIL MONTHLY AGRIBUSINESS BRAZIL. Macroeconomic Outlook. April 2016

Transcription

1 MONTHLY AGRIBUSINESS BRAZIL MONTHLY AGRIBUSINESS BRAZIL April 2016 Macroeconomic Outlook It looks as though the Brazilian economy has reduced its contractionary pace in the first quarter of 2016: a 0.7% drop in the GDP is expected for the quarter, compared with a 1.4% decrease in the fourth quarter of Boosted by data on new job creation, we begin to see more and more signs pointing towards a slower contraction. A slight increase in confidence was also recorded recently, and the ongoing inventory adjustment remains in place, for both industry and retail. In addition, as consumer confidence returns to higher levels, household consumption, from the perspective of demand, and the service sector GDP, from the perspective of supply, will see smaller decreases in the near future, before eventually resuming growth. In any case, the GDP is still expected to shrink by 3.5% this year. At the same time, we have reinforced our expectations for the next monetary policy decisions, and foresee the Selic coming to 12.25% by the end of this year. But that should occur within a few months, with increasing signs of a sharper decline in inflation. In fact, the world economy will remain deflationary, while in Brazil expectations will depend on the brutality of the downward adjustments currently underway, which will ensure that the IPCA closes the year up 6.5%. Finally, we believe that the value of the real will continue to depend primarily on the fiscal adjustment and political issues, as well as on the dollar s performance in global markets, which leads us to estimate an exchange rate of R$/US$3.60 at the end of the year. Although markets have recently been less volatile, some uncertainties remain with regards to China and its possible impacts on the world economy, especially in emerging countries and in commodity supply chains. We expect a slight recovery of the Chinese economy in the coming quarters. That means that central banks around the world are likely to pursue monetary expansion if they observe any threats to their country s economic recovery, as they are still concerned about the risks present in the international scenario. This is also true for the Federal Reserve, which will probably seek a more gradual approach to the monetary normalization process started at the end of last year. Executive Summary Soybeans - International prices continue their downward trend, reflecting high global inventory levels. Prices are expected to see some volatility, with all eyes focused on the effects of La Niña on the US planting season between May and June, and between September and October in Brazil. Domestic prices will remain high, benefited by the devaluation of the real. Corn Global oversupply and an increase in planted area in the US should result in lower prices. The development of La Niña in the coming months is expected to cause some volatility in prices. Domestic prices remain high, in response to the tight balance between supply and demand. In the second half of the year, these prices should fall due to the record yields from the second harvest. Coffee Expanding harvests from Brazil should continue to contribute to keeping international prices low. However, a weakened real continues to favor domestic prices. Volatility is expected to increase as information is made available about the Brazilian harvest, which starts in May. Cattle High exports and a combination of a low supply of animals ready for slaughter and a movement away from confinement provide the basis for continuing high cattle prices. But these increased levels will be limited by domestic demand. Sugar and Ethanol International sugar Prices are likely to remain low, reflecting a Brazilian harvest that produced more sugar than ethanol. In contrast, the estimated increase in the global deficit will offset the trend, preventing a sharp decline. Ethanol prices should continue to drop, once the Center-South crop hits the market. The floor will be set according to the estimated decrease in production.

2 Soybean International prices continue their downward trend, reflecting high global inventory levels. Prices are expected to see some volatility, with all eyes focused on the effects of La Niña on the US planting season between May and June, and between September and October in Brazil. Domestic prices will remain high, benefited by the devaluation of the real SOYBEANS Fundamentals The USDA released the latest monthly monitoring report for the 2015/16 crop, which didn t show any significant changes. The inventory-consumption ratio remains high at 25%, just below the 26.2% at which it closed for the previous crop, justifying the low international prices. For Brazil, the USDA estimates 100 million tons, close to the 99 million forecast by Conab. It should be noted that the 2015/16 crop has already been harvested in the US and is currently in the harvest stage in Brazil and Argentina. The USDA has released the first planting intentions report for the US. The forecast for the area planted with soybeans points to a slight drop of 0.5%, practically stable, while the area devoted to corn is expected to be 6.4% larger, due to corn s increased profitability in the country. A little over 60% of the area planted with soybeans in Brazil has already been harvested. Earlier this year, producers estimated significant yield losses in soybeans due to excessive rains. But now that the harvest is underway, estimates show that the rains were probably less harmful than expected, and the yield should improve. Incorporating the drought effects in the Northeast and in some towns in the Midwest, Conab revised the soybean production downwards from million to 98.9 million tons in the current crop survey, in comparison with last month. El Niño is starting to fade and weather models are pointing to an increasing chance of La Niña developing in the second half of the year. Although La Niña is already on the radar, there s still no definition of what its intensity, duration and period of occurrence will be. There is some consensus among meteorologists expectations that it will be moderated and should start sometime in the year s fourth quarter. If that is proven correct, the impact would be drier weather in the US and in the Center-South of Brazil, and would not affect the American crop, which would already be in the harvesting process, but could lead to drought that would affect the crop in southern Brazil. If La Niña develops early, the US could face a dry spell, and its harvest could suffer loss of yield, with a consequent price increase in the second half of the year. International prices should remain low in response to high global inventories. We should monitor price volatility, with all eyes focused on the effects of La Niña on the US planting season between May and June, and between September and October in Brazil. On the other hand, domestic prices will remain high, benefited by the depreciation of the real National production of soybeans in 000 tons /91 91/92 92/93 93/ /95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16* Source and Estimate: Conab 2

3 Soybean productivity in kg per hectare /91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16* Source and estimate: Conab Soybean producer price Paraná in R$ per 60 kg bag 80,0 70,0 60,0 73,92 61,83 63,78 50,0 43,93 48,15 44,37 45,68 50,53 53,38 40,0 39,81 40,14 30,0 26,63 32,42 28,62 27,03 30,59 Source: Deral Production and Estimate: BRADESCO 20,0 18,04 10,0 jan/00 jan/01 19,98 jan/02 jan/03 jan/04 jan/05 22,57 jan/06 jan/07 jan/08 jan/09 jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16 dez/ , , , , ,0 800,0 600, ,0 jan/ jan/01 jan/ jan/03 jan/04 jan/ jan/06 jan/ jan/08 jan/09 jan/ jan/11 jan/12 jan/13 jan/14 jan/15 jan/16 dez/ International soybean prices (US$ cents/bushel) Source: Bloomberg 3

4 Corn Global oversupply and an increase in planted area in the US should result in lower prices. The development of La Niña in the coming months is expected to cause some volatility in prices. Domestic prices remain high, in response to the tight balance between supply and demand. In the second half of the year, these prices should fall due to the record yields from the second harvest CORN Fundamentals The latest monthly monitoring report released by the USDA for the 2015/16 crop didn t show any significant changes. Inventory-consumption ratio remains at 21.5%, same as last month, and above the 19.8% recorded in the previous crop. For Brazil, the USDA estimates 84 million tons, same level forecast by Conab. The 2015/16 crop has already been harvested in the US and is currently in the harvest stage in Brazil and Argentina. The 2016/17 crop will be planted starting in May in the US. The USDA released the first planting intention forecast for the US, estimating a 6.4% increase in the area to be planted with corn in the country, which can be explained by corn s greater profitability against soybeans. Conab released the 7th survey for the 2015/16 harvest. The estimate for the first crop of corn, currently being harvested, was revised downwards, from 28.2 million tons last month to 27.5 million. For the second crop, currently being planted, the estimate increased from 57.1 to 55.3 million tons, setting a second crop record. The first crop is expected to be 8.5% lower than last year, which has been pressing prices upwards since the end of last year. The second crop is expected to be 5% higher than last year, and should ease the pressure on prices starting in June. Total corn production should reach 84.6 million tons, same volume as last year s. Domestic corn prices have been on an upward trend since the end of last year, sustained by the first crop s lower yield, robust domestic demand at poultry and pig farms, and export shipments. The inventory-domestic consumption ratio for corn is at 12.6%, considered low when compared to three seasons ago, when it reached 21.7%. El Niño is starting to fade and weather models are pointing to an increasing chance of La Niña developing in the second half of the year. Although La Niña is already on the radar, there s still no definition of what its intensity, duration and period of occurrence will be. There is some consensus among meteorologists expectations that it will be moderated and should start sometime in the fourth quarter. If that is proven correct, the impact would be drier weather in the US and in the Center-South of Brazil, and would not affect the American crop, which would already be in the harvesting process, but could lead to drought that would affect the crop in southern Brazil. If La Niña develops early, the US could face a dry spell, and its harvest could suffer loss of yield, with a consequent price increase in the second half of the year. International price fundamentals remain pointing to a downward trend: global oversupply and an increase in planted area in the US. The development of La Niña in the coming months will make prices more volatile, especially during planting seasons in the US and Brazil, which take place, respectively, from April to May and September to November. Domestic prices remain high, reflecting a very tight balance between supply and demand. However, a sharper drop in prices should occur starting in the second half of the year, as the second crop of corn, which should be record-setting, hits the market Domestic corn production in 000 tons /91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16* Source and estimates: Conab 4

5 Corn productivity in kg per hectare /91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16* Source and estimate: Conab Corn producer price Paraná in R$ per 60 kg bag 40,0 35,0 30,0 25,0 22,28 24,94 26,92 23,29 34,26 24,34 Source: Deral Production and Estimate: BRADESCO 20,0 15,0 11,95 10,0 5,0 jan/00 11,40 7,05 jan/01 jan/02 jan/03 jan/04 18,96 16,26 jan/05 jan/06 10,44 jan/07 14,14 jan/08 jan/09 jan/10 13,07 jan/11 jan/12 jan/13 17,26 jan/14 jan/15 19,17 jan/16 dez/ International Corn prices (US$ cents/bushel) jan/00 jan/ jan/02 jan/03 jan/04 jan/ jan/ jan/07 jan/ jan/09 jan/ jan/11 jan/12 jan/ jan/ jan/ jan/16 dez/ Source: Bloomberg 5

6 Coffee Expanding harvests from Brazil should continue to contribute to keeping international prices low. However, a weakened real continues to favor domestic prices. Volatility is expected to increase as information is made available about the Brazilian harvest, which starts in May COFFEE Fundamentals In mid-may, Conab will release the second monitoring report for the 2016/17 crop. In mid-june, the USDA will release its half-yearly report, which will provide us with a clearer outlook on global harvest estimates for 2016/17. It should be noted that the 2016/17 crop will be harvested starting in May in Brazil, and in October in other world players. With this seasonal discrepancy between producers, the El Niño effects were also different. Brazil had a rainy period during the plant development and flowering stages, resulting in greater yields. Meanwhile, in Asia, where there are relevant producers such as Vietnam and Indonesia, as well as in Central America (Colombia), the El Niño effects resulted in drought, which may affect the productivity of the plants in these countries. The ICO estimates that global consumption of coffee rose from 150 million to million bags between 2014 and Consumption has been growing most strongly in the United States, Japan and Asia. Conab estimated in January that the 2016/17, a high year in the two-year cycle, should reach 50.5 million bags, representing a 16.9% increase compared with the last harvest, which was 43.2 million bags. Although the Brazilian crop forecasts vary widely, the different entities are unanimous in agreeing that a good crop will be harvested starting in May, in response to the wetter climate in coffee-growing regions, an effect of El Niño. The fundamentals continue to point to low international coffee prices in the future months, as the Brazilian crop is expected to produce excellent yields. On the other hand, domestic prices should remain high, reflecting a depreciated real. Volatility is expected to increase as information is made available about the Brazilian harvest, which starts in May Domestic coffee production in kg bags /95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17* Source and estimate: Conab 6

7 Arabica coffee São Paulo in US$ per 60 kg bag 590,0 490,0 530,8 480,1 491,1 548,9 390,0 290,0 223,6 190,0 239,8 337,0 230,4 291,4 328,0 269,8 247,5 408,6 424,0 366,3 247,7 Source: BMF BOVESPA 90,0 jan/00 jan/01 jan/02 jan/03 jan/04 jan/05 jan/06 jan/07 jan/08 jan/09 jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16 dez/16 325,0 275,0 272,07 International Coffee Prices In US$ cents/ Lb 225,0 175,0 125,0 115,06 75,0 99,48 127,53 204,99 152,04 142,45 131,18 108,67 96,55 197,02 180,03 150,03 117,62 118,14 117,85 25,0 jan/00 jan/01 63,07 65,95 67,78 jan/02 jan/03 jan/04 jan/05 jan/06 jan/07 jan/08 jan/09 jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16 dez/16 Source: Bloomberg 7

8 Cattle High exports and a combination of a low supply of animals ready for slaughter and a movement away from confinement provide the basis for continuing high cattle prices. But these increased levels will be limited by domestic demand BEEF Fundamentals Shipments of beef began to increase in the beginning of the second half of last year, favored by depreciated exchange rate, and should continue to expand this year as markets are opening up to Brazilian meat (United States, China, Japan, South Africa, Iraq, Iran and Saudi Arabia). In the first quarter of this year, shipments grew by 18.3% compared to the same period last year, with strong growth to China, Iran and Russia. As a consequence of a troubled job market and loss of income among the population, consumers are increasingly moving away from beef and buying more chicken. While we still don t have any domestic consumption figures, wholesale prices support this trend. Since the middle of last year, the wholesale price of lower-quality beef rose 5.5%. That is below inflation, despite an increase in cattle prices. As for the prices of chicken, they ve increased just over 10%. The supply of animals ready for slaughter continues to be tight this year, reflecting the slaughter of females in previous years. The feedlots aren t likely to contribute significantly to expanding supply this year, as the cost of corn-based feed will remain high, as will calf prices. In the first quarter of this year, slaughter volumes fell 7% against the same period last year, after an 8% drop last year. Despite a slowdown in domestic consumption, cattle prices should stay high, reflecting a robust export demand and a restricted supply of animals ready for slaughter Brazilian beef exports (in tons) jan fev mar abr mai jun jul ago set out nov dez Source: SECEX 8

9 Slaughter Cattle in thousand heads Source : MAPA Production : BRADESCO jan fev mar abr mai jun jul ago set out nov dez 180,0 160,0 140,0 120,0 100,0 80,0 60,0 40,0 42,2 51,7 61,8 93,3 125,2 109,6 106,9 108,4 97,0 90,8 74,5 150,7 155,3 163,0 Live cattle producer price São Paulo in R$ per arroba 20,0 jan/02 jan/03 jan/04 jan/05 jan/06 jan/07 jan/08 jan/09 jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16 dez/16 Source: Cepea

10 Sugar and Ethanol International sugar Prices are likely to remain low, reflecting a Brazilian harvest that produced more sugar than ethanol. In contrast, the estimated increase in the global deficit will offset the trend, preventing a sharp decline. Ethanol prices should continue to drop, once the Center-South crop hits the market. The floor will be set according to the estimated decrease in production SUGAR AND ETHANOL Fundamentals The International Sugar Organization (ISO) released a new forecast for the global production deficit in the 2015/16 harvest, which is still in its processing stage in Asia, Europe and Australia. The previous estimate of 3.5 million tons, made last November, has been adjusted to 5 million tons, due to the lower yield projections for India and Thailand in the 2015/16 harvest. The USDA s next half-yearly report will be released mid-may. Conab has released the first survey of the 2016/17 harvest and the closing numbers for the 2015/16 harvest. After a 4.4% decrease in planted area at last year s harvest, the area increased 5.4%, setting a record. The yield for the 2015/16 sugar cane harvest, previously estimated at million tons, was revised to million tons. The current 2016/17 harvest is estimated at 691 million tons, which would represents a new record, and a 3.8% increase from the previous season, which grew 4.9%. This higher yield is due to better weather and an increase in area. Sugar production, which had been dropping since 2012, is expected to climb 12% and reach 37.5 million tons. Meanwhile, ethanol production should total 30.3 million liters, remaining stable compared to last harvest, which saw a 6.3% growth. Unlike sugar, ethanol has been recording increasing yields since The production of anhydrous ethanol (blended with gasoline) is estimated to be 11.7 million liters, up 4.7%. On the other hand, the production of hydrated ethanol (used in flexible-fuel vehicles) should drop 3.4%, for a total of 18.6 million liters. This harvest, which has favored sugar production, reflects the commodity s good profitability. In March, international sugar prices were at impressively high levels, driven by news of poor yields in Thailand and India, and by the appreciation of the real against the dollar, which hindered efforts to keep prices down. International sugar prices should stay at low levels in the coming months, reflecting the market s absorption of the Brazilian harvest, which will produce more sugar than ethanol. In the opposite direction, the estimated increase in the global deficit in the 2015/16 harvest, which is still being processed in the Northern Hemisphere, should offset the prices, preventing a sharp decline. With the harvest hitting the market starting in April, ethanol prices are also likely to drop in the months ahead. It s not expected to be a sharp drop, however, since producers have revised the estimated production of hydrated ethanol downwards by 3.4% Sugar cane production in 000 tons /91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17* Source and estimate: Conab 10

11 Domestic sugar and ethanol production Sugar in 000 tons Ethanol in 000 liters SUGAR ETHANOL Source and estimate: Conab /94 94/95 95/96 96/ /98 98/ /00 00/01 01/ /03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17* Hydrous Ethanol Prices in R$ per cubic meters jan/12 fev/12 mar/12 abr/12 mai/12 jun/12 jul/12 ago/12 set/12 out/12 nov/12 dez/12 jan/13 fev/13 mar/13 abr/13 mai/13 jun/13 jul/13 ago/13 set/13 out/13 nov/13 dez/13 jan/14 fev/14 mar/14 abr/14 mai/14 jun/14 jul/14 ago/14 set/14 out/14 nov/14 dez/14 jan/15 fev/15 mar/15 abr/15 mai/15 jun/15 jul/15 ago/15 set/15 out/15 nov/15 dez/15 jan/16 fev/16 mar/16 abr/16 mai/16 jun/16 jul/16 ago/16 set/16 out/16 nov/16 dez/16 Source: BMF BOVESPA International sugar prices In US$ Cents/ Lb 33,0 27,0 28,4 32,1 29,5 24,9 21,0 17,9 21,9 17,7 15,0 13,1 14,6 15,4 14,9 14,03 Source: Bloomberg 10,7 9,0 9,0 8,8 5,6 3,0 jan/00 jan/01 jan/02 jan/03 9,0 8,4 6,3 jan/04 jan/05 jan/06 8,9 jan/07 jan/08 11,3 jan/09 jan/10 jan/11 jan/12 jan/13 jan/14 10,7 jan/15 jan/16 dez/16 11

12 Harvest follow-up Non-commercial positions and international coffee prices Non-commercial position Coffee 281, , , , Source: Bloomberg -20 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar jun Non-commercial position soybean price , Non-commercial positions and international soybean prices Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar jun- Source: Bloomberg Non-commercial positions and international corn prices Non-commercial position corn price ,8 789, , , , Source: Bloomberg 150 Mar-10 Nov-10 Jul-11 Mar-12 Nov-12 Jul-13 Mar-14 Nov-14 Jul-15 Mar

13 Snapshot of the market SOYBEANS Soybean Complex Of soybean grain produced in Brazil, 43% is exported and 57% is destined to milling. The milling process results in 72% bran and 18% oil. The remaining 10% are seeds and losses. Of bran produced, 50% is exported and 20% of oil is exported. Soybean is an exports culture, since the level of production exceeds consumption by around 40%. This means that any growth of domestic production results in exportable surplus. In the domestic market, soybean is used in the manufacturing of food, such as salami and sausages and nearly 80% is employed to produce animal s food. Soybean accounts for 25% to 30% of poultry and hog food. Countries of destination Grain: 75% China, 25% Europe, 10% other Asian countries. Bran: 70% Europe, 20% Asian countries. Oil: 50% China, 20% India. Seasonality Summer crop: planting occurs between October and December and harvest is concentrated between February and May. Regionalization Mid-west: 49%, south 33%, 8% northeast, 6% southeast Ranking Brazil is the world s second largest player of production with 30.8%, behind the USA with 31.5%, but it is the largest exporter with 40.7%, followed by USA with 39.3%. 13

14 Snapshot of the market CORN Corn is the basis of animal s food for main types of breeding. In the animal s food composition, corn accounts for: 64% in poultry raising 65% in hog raising 23% in dairy cattle Countries of destination Corn exports account for 28% of volume produced. Main markets of destination are 14% Japan, 13% South Korea, 8.5% Taiwan. Seasonal factors Corn has two crops: Summer crop: planting occurs between October and December and harvest is concentrated between February and May. It represents 40% of total harvest. It has the following regional distribution: 45% south, 26% southeast, 10% mid-west, 15% northeast. Winter crop: planting occurs between February and June and harvest is concentrated between July and November. It accounts for 60% of total crop. It has the following regional distribution: 64.3% mid-west, 23% south (only in Paraná), 6% northeast (only in Bahia), 5% southeast. Ranking Brazil is the world s third largest corn producer, with 7% market share and the second largest exporter, with 18% market share. 14

15 Snapshot of the market COFFEE Brazil exports 67% of coffee produced, 90% green coffee and 10% instant coffee. Coffee cultivation has high workforce costs, which account for nearly 52% of total costs, since most part of harvest is manual. Countries of destination Green coffee: 19.3% USA, 18.8% Germany, 10% Japan. Instant coffee: 16.3% USA, 13.5% Russia, 6.4% Ukraine. Regionalization Regional distribution of coffea arabica: 71.5% state of Minas Gerais 10.5% state of São Paulo 9.1% state of Espírito Santo 4.3% state of Paraná 2.8% state of Bahia Regional distribution of Robusta coffee production: 75.6% state of Espírito Santo 12.5% state of Rondônia 6.7% state of Bahia 2.6% state of Minas Gerais Seasonality Coffee flowerage occurs between September and November in Brazil. Harvest starts in May and extends until September. Ranking Brazil is the world s largest coffee player with 37% market share in production and 27% in exports. Other players, such as Vietnam and Colombia have low domestic consumption, opposite to Brazil, which accounts for 15% of global consumption. 15

16 Snapshot of the market BEEF Brazilian cattle is estimated in approximately 200 million heads. The commercial livestock for slaughtering is estimated at 40 million heads, i.e., this is the volume of cattle at age and weight ideal for slaughter. The remaining cattle is divided among dairy cows, male calf and unfinished cattle. Exports accounts for 20% of beef national production. Countries of destination Russia is the main market of destination of Brazilian beef exports, accounting for 22%. Hong Kong accounts for 18%. Regionalization Cattle slaughter has the following regional distribution: 36.4% mid-west, 20.4% southeast, 20.1% north, 12.3% south and 10.8% northeast. Ranking Brazil is the world s second largest beef producer with 16.9% market share, preceded by the USA, which holds 19.1%. Brazil is the world s largest exporter with 21% market share. Seasonality Cattle raising cycle is long 2.5 years since when male calf is born until slaughter with approximately 15 arrobas. Cattle breeding system in Brazil is the extensive cattle raising, i.e., bull is raised released in the pasture and eats grass. The confinement system, where bull is raised with animal s food in small areas, accounts for only 5% of total slaughter. Cattle crop occurs in the first half of the year, during rainfall period, when pasture is plentiful. With a greater cattle supply for slaughter, finished cattle prices during such period are lower. The cattle intercrop occurs in the second half of the year, during drought period, when cold and white frost dry pasture. Bull lose weight, with lower cattle supply for slaughter. However, cattle prices increase during such period, as supply is higher for confined cattle, whose production cost is higher. During intercrop peak (October) there is greater number of confined male cattle slaughter. Confinements have two shifts: 1st shift: unfinished cattle is stored between May-June and delivered in August-September. 2nd shift: unfinished cattle is stored between August-September and delivered in November-December. 16

17 Snapshot of the Market SUGAR AND ETHANOL Sugarcane Complex Of sugarcane produced in Brazil, 46% is destined to produce sugar and 54% to produce ethanol. Sugar has the following destination: 70% exports and 30% domestic market. Ethanol has the following destination: 10% exports and 90% domestic market. Out of total ethanol produced, 55% is hydrated (used as fuel in flex fuel vehicles) and 45% is used as anhydrous (mixed to gasoline between 20% and 26%). Sugar is an exports culture, since level of production exceeds consumption by approximately 70%. This means any growth of national production generates exportable surplus. Countries of destination Raw sugar (73% of production) : 15% China, 8% Bangladesh; Refined sugar (27% of production): Arabian and African countries; Ethanol: 60% USA, South Korea 13%. Seasonality Cane is a continual culture, since period between cane planting and harvest is 18 months, and from same plant, it is possible to make until six cuts, on average. Cane harvest period occurs between April and November. During such period, mills operate 24 hours. Between January and March, plants are disassembled for maintenance. Brazil is the single large global player with crop in the first half of the year. Other countries are: USA, Europe, India, Thailand and Australia start their crop from the second half of the year. Regionalization 65% southeast, 16.8% mid-west, 10.3% northeast, 7.3% south. Ranking Brazil is the world s largest sugar producer, with 22.2% market share. Other players are: India 15%, European Union 9.2%, China 8.5%, Thailand 6.2%. Brazil is the largest exporter, with 46% market share in the global market. Other exporters are: Thailand 15%, Australia 5.4%. World s largest ethanol producers are: 57% USA and 27% Brazil. 17

18 DEPEC - BRADESCO does not accept responsibility for any actions/decisions that may be taken based on the information provided in its publications and projections. All the data and opinions contained in these information bulletins is carefully checked and drawn up by fully qualified professionals, but it should not be used, under any hypothesis, as the basis, support, guidance or norm for any document, valuations, judgments or decision taking, whether of a formal or informal nature. Therefore, we emphasize that all the consequences and responsibility for using any data or analysis contained in this publication is assumed exclusively by the user, exempting BRADESCO from all responsibility for any actions resulting from the usage of this material. We all point out that access to this information implies acceptance in full of this term of responsibility and usage. The reproduction of the content in this report (partially or in full) is strictly forbidden except if authorized by BRADESCO or if the sources (the name of the authors, publication and BRADESCO) are strictly mentioned. Team Octavio de Barros - Macroeconomic Research Director Marcelo Cirne de Toledo Global economics: Fabiana D Atri / Felipe Wajskop França / Thomas Henrique Schreurs Pires / Ellen Regina Steter Brazil: Igor Velecico / Estevão Augusto Oller Scripilliti/ Andréa Bastos Damico / Myriã Tatiany Neves Bast / Daniela Cunha de Lima / Ariana Stephanie Zerbinatti Brazilian sectors: Regina Helena Couto Silva / Priscila Pacheco Trigo Proprietary survey: Leandro Câmara Negrão/ Ana Maria Bonomi Barufi Internships: Gabriel Marcondes dos Santos / Wesley Paixão Bachiega / Carlos Henrique Gomes de Brito