MONTHLY AGRIBUSINESS BRAZIL MONTHLY AGRIBUSINESS BRAZIL. Macroeconomic Outlook. May 2015

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1 MONTHLY AGRIBUSINESS BRAZIL MONTHLY AGRIBUSINESS BRAZIL May 2015 Macroeconomic Outlook Expectations regarding the handling of economic policy continue to share the spotlight with the ongoing downturn in the Brazilian economy. For now, fiscal adjustment still largely depends on the political scenario, which remains volatile. Nevertheless, we are maintaining our estimate of a primary surplus equivalent to 1.2% of GDP, considering the measures to increase revenue and reduce spending already in place and the healthy performance of the regional governments finances. At the same time, the signals from the economy remain weak, pointing to GDP shrinkage of 1.2% in the second quarter - compatible with our forecast of an annual GDP reduction of 1.7% this year. High industrial inventories, low business and household confidence and the deterioration of the job market (with increasing unemployment and slowing wage gains) should impose limits on a more pronounced upturn in activity from now on. In addition, consumer inflation ended the first quarter under extreme pressure, which should be alleviated somewhat from now on and we expect the IPCA consumer price index to record an increase of 8.3% in 2015 and 5.2% in We believe the Selic rate will reach 13,75% at the end of this year and an exchange rate of R$/US$ 3.00 in the coming months. Recent global data supports our expectation that global GDP growth in 2015 will be slightly lower than that recorded last year (we forecast an expansion of 3.1% compared to 3.4% in 2014). The Chinese economy remains weak, which will lead the second quarter s GDP below the 7% target. In the US, after frustration with the economy's performance in the first quarter, we have not yet noticed a clearer recovery, which reduces the pressure to increase interest rates in coming months. In any case, we maintain our view that the Fed will begin to normalize the monetary policy in September. Finally, the European economy after significant growth at the beginning of the year begins to settle, especially in Germany. We do not foresee any significant change in this scenario in the second quarter and we believe the slower pace of the Chinese economy represents a substantial downward risk at the same time as market attention will continue to be centered on the activities of the central banks. Executive Summary Soybeans Despite lower soybean harvests in the US, global stocks remain high, reaching global stock consumption ratio of 31%, the highest level in the series. Therefore, prices are expected to continue at low levels, but without further falls, as the prices in the future market are already seeing the effects from the excess of supply. Corn International prices should continue slightly higher in the coming months, reflecting the decline of the US harvest, currently in the planting phase. In the domestic market, prices also continue to increase moderately as a result of lower expectations for the second harvest. Coffee The better climate regularity in the country s Southeast is raising the estimates for the 2015/16 crop in the beginning of the harvest, pushing the prices down, but with volatility due to the uncertainty about the potential of the Brazilian crop. Cattle Prices should remain high in the months as a result of low supply of animals for slaughter and the drier weather. But there are risks of a cattle price slide, such as possible reduction in domestic consumption due to unemployment rising and the continuing decline in beef exports to the oil producing countries. Sugar and Ethanol Sugar prices should continue high as a result of better adjustment of global supply, made possible by the stability of production in Brazil and by the decrease in Asian crops. Ethanol prices should remain at low levels, as the processing phase of the crop continues, with an expected 4.3% increase in production this year.

2 90/91 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* SOYBEANS Soybean Despite the lower soybean harvest in the US, global stocks remain high, reaching global stock consumption ratio of 31%, the highest level in the series. Therefore, prices are expected to continue at low levels, but without further falls, as the prices in the future market are already seeing the effects from the excess of supply Fundamentals The USDA released the first report for 2015/16 and pointed stability for the global production compared to the previous harvest year, totaling million tonnes. But estimates for the US production are for a 3% decline, from 108 million to 105 million tonnes, resulting in a 3.8% fall of the expected yield, while the area should be 1.1% bigger. For Brazil, the USDA estimated the 2015/16 crop at 97 million tonnes, representing an expansion of 2.6% over the previous harvest year, which was 94.5 million tonnes. Despite appointed to overall production stability, the USDA estimates that stocks still remains high and the stock consumption ratio should reach 31.6%, compared to 29.3% in the previous harvest. Conab s eighth 2014/15 harvest increased, for the second time, the soybean production estimate from 94.7 million to 95.1 million tonnes, incorporating the best yield expectations benefited from the wettest weather. This reverses previous expectations that output could be jeopardized by the drought. The Brazilian crop, now being harvest, should reach record levels, with an increase of 10.4% over the previous harvest year. Since January this year, the expectations for the climate have changed from neutral to a 70% probability for the occurrence of El Niño in the second half of the year (from climate models from NOAA, the US meteorological service). The El Niño is related to increased rainfall levels in Brazil s Center-South region and in the United States, and drier weather in Asia. This climate phenomenon should ensure price volatility throughout the year, but with a downward tendency, due to prospects of healthy harvests in the exporting regions. Despite the expected production decline in the United States, we will have two consecutive harvests production exceeding 100 million tonnes, compared to an average of 88 million over the last five seasons. For Brazil, the expectation is also a new record harvest. Therefore, global stocks are estimated at very Fonte e Projeção: CONAB em mil toneladas Produção Nacional de Soja Elaboração: Bradesco high levels, reaching a stock consumption ratio of 31%, keeping prices at low levels. But we should not expect further falls, as the prices in the future market are already seeing the effects from the excess of supply. National production of soybeans in 000 tons Source and Estimate: Conab

3 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 dez/15 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 dez/15 90/91 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* Soybean productivity in kg per hectare em R$ por saca de 60 kg SOJA EM GRÃO PREÇO AO PRODUTOR - PRAÇA PR Source and estimate: Conab Fonte: Deral PR Elaboração e Projeção: Bradesco Soybean producer price Paraná in R$ per 60 kg bag 80,0 70,0 60,0 73,92 61,83 58,87 57,57 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 Fonte: Bloomberg em US$ cents por PREÇOS bushel INTERNACIONAIS DE SOJA - BOLSA DE CHICAGO - CBOT PREÇO FUTURO 1º VENCTO Projeção de preço: média dos preços futuros Elaboração: Bradesco em US$ cents por bushel 19,98 22, , , , , , International soybean prices (US$ cents/bushel) ,0 600, , Source: Bloomberg 3

4 90/91 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* CORN Corn International prices should continue slightly higher in the coming months, reflecting the decline of the US harvest. In the domestic market, prices also continue to increase moderately as a result of lower expectations for the second harvest Fundamentals The USDA s first report on the 2015/16 crop showed a 0.6% decline estimate for the global corn production that should reach million tonnes. For the US harvest, it is estimated a 4.1% decline, equivalent to 14.9 million tonnes, as a result of a 1.5% decrease in the area and a 2.5% fall in expected yield. The USDA estimates the Brazilian crop at 75 million tonnes, dropping 3.8% from the previous season, which reached 78 million tonnes. Conab s eight 2014/15 harvest survey increased its 1st harvest estimate by 1.3% over the previous month. This is the third positive review as a result of improved expectations for productivity, due to the wet weather. For the second harvest, currently in the planting phase until September, Conab s estimate a downward of 1.6% of expected production, due to the lower expected yields in the Midwest. Total corn production is estimated at 78.6 million tonnes, representing a decrease of 1.8% over the previous harvest year. NOAA is giving a high probability that El Niño will occur this year, implying increased rainfall and consequent abundant harvests in Brazil s Center-South, Argentina and the United States, and drier weather, with possible poor harvests, in Asia. Therefore, we may have a year with a lot of price volatility. Nevertheless, corn prices tendencies em mil toneladas are slightly higher, reflecting the production decline Fonte in e Projeção: the US Conaband Produção Nacional de Milho Brazil, and the retraction of the global stock consumption ratio from 19.7% to 19.4%. Domestic corn production in 000 tons Source and estimates: Conab

5 em kg por ha Produtividade - Milho jan/00 90/91 91/92 jan/01 92/93 jan/02 93/94 94/95 jan/03 95/96 jan/04 96/97 97/98 jan/05 98/99 jan/06 99/00 00/01 jan/07 jan/00 01/02 jan/08 jan/01 02/03 03/04 jan/09 jan/02 04/05 jan/10 jan/03 05/06 06/07 jan/11 jan/04 07/08 jan/12 jan/05 08/09 09/10 jan/13 jan/06 10/11 jan/14 11/12 jan/07 jan/15 12/13 jan/08 13/14 dez/15 14/15* jan/09 jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 dez/ Corn productivity in kg per hectare Em R$ por saca de 60 kg Preço pago ao produtor de milho - Paraná Fonte: Deral Elaboração e Projeção: Source and estimate: Conab Corn producer price Paraná in R$ per 60 kg bag 30,0 25,0 20,0 22,28 18,96 24,94 26,92 19,96 23,29 20,87 15,0 11,95 10,0 11,40 16,26 10,44 14,14 13,07 17,26 17,84 Source: Deral 7,05 Production and Estimate: 5,0 BRADESCO Milho - Bolsa de Chicago - CBOT Em US$ cents por bushel Preço futuro 1º vencimento Fonte: Bloomberg Elaboração e Projeção: Bradesco International Corn prices (US$ cents/bushel) Source: Bloomberg 5

6 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* COFFEE Coffee The better climate regularity in the country s Southeast is raising the estimates for the 2015/16 crop in the beginning of the harvest, pushing the prices down, but with volatility due to the uncertainty about the potential of the Brazilian crop Fundamentals In January, Conab published its first survey of Brazil s 2015/16 coffee crop, estimating production of 45.4 million bags. In the case of arabica coffee, production is expected to increase by 3.5% due to the following factors: (i) the 2.9% increase in output in Minas Gerais due to the 30.5% upturn in production in the Zona da Mata region, whose two-year cycle is inverted in comparison with the other producing regions; (ii) the recovery of output in Paraná, which had been badly hit by frosts last year; and (iii) the increase in planted area and higher yields in Bahia. In the case of São Paulo, however, Conab expects a 6.4% decline due to the negative two-year cycle effect. Next month, Conab s second survey of the Brazilian crop and the USDA s semi-annual report for the global harvest will be released. The USDA s report of Brazil s 2015/16 coffee crop released this month expected production to reach 52.4 million bags of 60 kilos, an increase of 2.3% over the previous harvest, which totaled 51.2 million of bags, due to improved productivity benefited from the rainiest weather. Unlike the grain market, which has monthly production surveys from Conab and the USDA, the coffee culture has semi-annual and quarterly surveys. In addition to this, there are significant divergences in the statistics that range from 7 to 10 million bags. Therefore, predictability is more difficult, which makes the market fluctuates according to climate variations, bringing more volatility. Meteorology services are pointing to the occurrence of El Niño in the second half of the year. The weather phenomenon is related to increased rainfall levels in Brazil s Center-South region and drier weather in Asia. Therefore, the climate may benefit the coffee production in Brazil, but can cause falls, still not possible to quantify, in Vietnam and Indonesia, which together account for 26% of the global production and 30% of exports. Coffee consumption is expected to continue expanding, reflecting the economic recovery in Europe and in the United States and the continued expansion in emerging countries. Coffee prices have fallen sharply since the beginning of the year, due to improved rainfall in the Southeast of Brazil and the consequent speculation over the potential of the 2015/16 crop. The rainfall in the Country's Southeast region has led specialized consultants and the USDA to indicate that the 2015/16 Produção crop Nacional in de Café Brazil, in early Fonte harvesting e projeção (*): Conab phase, Elaboração: Bradesco should be larger than the previous harvest. Uncertainties about the potential of the Brazilian crop should collaborate to prices volatility, but with a downward tendency due to the more optimistic estimates for the Brazilian crop. mil sacas de 60 kg Domestic coffee production in kg bags Source and estimate: Conab 6

7 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 dez/15 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 dez/15 Arabica coffee São Paulo in US$ per 60 kg bag 590,0 540,0 490,0 530,8 549,0 440,0 390,0 340,0 290,0 337,0 291,4 269,8 328,0 457,8 408,6 387,5 366,3 240,0223,6 190,0 239,8 230,4 245,8 247,5 282,2 247,7 140,0 Source: BMF BOVESPA 90,0 104,4 Café em grão - Bolsa de Nova York - NYBOT Projeção de preço: média dos preços futuros Em US$ cents por libra peso Fonte: Bloomberg Elaboração: 325,0 275,0 225,0 272,07 204,99 180,03 197,02 International Coffee Prices In US$ cents/ Lb 175,0 125,0 115,06 75,0 63,07 65,95 99,48 127,53 96,55 131,18 152,04 142,45 108,67 150,03 134,72 117,62 146,34 67,78 25,0 Source: Bloomberg 7

8 BEEF Cattle Prices should remain high in the months as a result of low supply of animals for slaughter and the drier weather. But there are risks of a cattle price slide, due to reduction in domestic consumption and the continuing decline in beef exports Fundamentals In the first four months of the year, beef exports fell by 20% over the same period last year, with declines in the volume shipped to the main destinations, which account for 42% of the total: Russia (-35%), Venezuela (-43%) and Iran (-40%). Shipments were jeopardized by the impact of the slide in oil prices on the economies of the oil-producing countries. In addition, the devaluation of the Russian currency made beef imports more expensive in that country. The USDA released its biannual meat market report in early April. Estimates for 2015 released in October last year were reviewed in this report. The projection for meat production in Brazil was adjusted down by 4%, and the expectation for volume shipped was also revised down by 10% and household consumption by 2% over the volumes expected in October last year. Still, according to the USDA, Brazilian beef exports are expected to grow 5% compared to last year. The new estimates are in line with the new meat import estimates by Russia and Venezuela, whose purchases are expected to fall 18% and 28% in 2015, respectively. Domestic meat consumption may also suffer in the coming months, reflecting the deterioration in the job market and the upturn in inflation, still pressured. Indeed, the USDA s semi-annual report showed lower estimate for the domestic consumption, with a 2% decline compared to the estimate of October The supply of animals ready for slaughter will remain tight due to the slaughter of females in previous years, leading to an increase in bull-calf prices. According to Mapa, the slaughter rate in the first quarter fell by 10% over the same period last year. Bull-calf prices climbed by slightly more than 40% in 2014 and a further 18% since the beginning of the current year. Cattle prices should remain high in the coming months, reflecting the restricted supply of animals ready for slaughter and the dry autumn/winter weather. But we cannot forget other factors that may exert downward pressure, such as the risks of a continuing decline in exports to the oil-producing countries and a slide in domestic demand as a result Exportações of the Brasileiras deteriorating carne bovina job market and Em toneladas the pressured Fonte: Secex Elaboração: inflation. Bradesco Brazilian beef exports (in tons) Source: SECEX jan fev mar abr mai jun jul ago set out nov dez 8

9 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 dez/15 Abates mensais de boi Em toneladas Fonte: Secex Elaboração: Bradesco Slaughter Cattle in thousand heads Source : MAPA Production : BRADESCO Em R$ por arroba (15 kg) BOI GORDO Fonte: Cepea Esalq PREÇO AO PRODUTOR jan fev - PRAÇA mar SP Elaboração abr e Projeção: mai Bradesco 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 74,5 109,6 125,2 108,4 106,9 97,0 90,8 143,2 153,5 Live cattle producer price São Paulo in R$ per arroba 20,0 Source: Cepea

10 90/91 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* SUGAR AND ETHANOL Sugar and Ethanol Sugar prices should continue high as a result of better adjustment of global supply. Ethanol prices should remain at low levels, as it goes through the processing phase of the crop Fundamentals Conab also published its first survey of the 2015/16 crop in April, which is in the initial processing phase in the Center-South, with harvesting beginning in the Northeast in September, pointing out that the production of sugarcane in the Center-South is estimated at million tonnes, 3% up on the million tonnes in the previous season. The improved production is due to the 2.4% increase in yield as a result of higher rainfall in the first quarter, given that the planted area will only increase by 0.7%. Conab's next survey will be published in mid-august. Unica released the first estimate for the 2015/16 crop in the Center-South region of the country, where 590 million tonnes of sugarcane will be processed, an increase of 3.3% compared to the volume of 571 million tonnes processed in the last harvest, due to the weather improvement. Last year, the sugarcane processing was 4.3% lower, affected by the drought. The harvest should be predominantly ethanol producing, since the estimate is an increase of 4.3% in ethanol production and decrease of 0.6% in sugar production. The USDA released the first estimate for the 2015/16 crop of sugarcane and showed a decrease of 0.5% for global sugar production. A decrease of 1.6% was pointed out for the production estimate in India and 1.6% in China, countries that may be affected by the drought expected due to the occurrence of the El Niño in the second half of this year. In Brazil, the USDA estimated expansion of 0.4% in sugar production. The USDA estimated that global consumption is expected to grow 1.3% and, therefore, the overall surplus before estimated at 4 million tonnes, will be reset and the stock consumption ratio will fall from 26% to 23.4%, contributing to the recovery, even if gradual, of international prices. According to the ANP, hydrous ethanol sales increased by 27% year-on-year in the first quarter of the year, while gasoline sales fell by 2%. With the imposition of the tax on gasoline at R$0.22/liter as of February 1, the ethanol/gasoline price ratio was more favorable to the former, narrowing from 70% at the end of last year, to 68% recently. Meteorology services are pointing out that, in the second half, the weather phenomenon El Niño will occur. The effects of El Niño are rainfall in Brazil s Center-South, favoring the sugarcane productivity in this heavily producer region. On the other hand, it can led to drier weather in Asia, with possible poor harvests in India and Thailand, which together account for almost 25% of the global production. The better global supply adjustment, made possible by the stability of the production in Brazil and by the decrease of crops in Asia, with consequent drop of stocks, should sustain sugar prices in the Fonte e projeção : Conab mil toneladas Elaboração. international Bradesco market. Produção Ethanol Nacional prices de Cana-de-Açúcar should remain at low levels in the coming months, given the entry of the harvest-processing phase (expected to increase 4.3% of production this year). But valuation in prices is expected from the second half, as demand remains high, due to the expansion of the light vehicle fleet in recent years Sugar cane production in 000 tons Source and estimate: Conab 10

11 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 dez/15 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 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* Domestic sugar and ethanol production SUGAR ETHANOL Sugar in 000 tons Ethanol in 000 liters Source and estimate: Conab em R$ por metro cúbico Hydrous Ethanol Prices in R$ per cubic meters Em US$ cents por libra peso Source: BMF BOVESPA Preços internacionais de açúcar NYBOT Preço futuro 1º Vencto Fonte: Bloomberg Elaboração: Bradesco 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 Source: Bloomberg 15,0 9,0 5,6 3,0 10,7 9,0 8,8 6,3 9,0 8,4 8,9 13,1 11,3 14,6 15,4 12,9 14,3 11

12 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May jun-09 Harvest follow-up Posições Não Comerciais e Preços Internacionais de café Fonte: Bloomberg Elaboração: Bradesco Non-commercial holdings and international coffee prices Non-commercial holdings Coffee 304, , , , , Source: Bloomberg Non-commercial holdings Soybean price 1.628, , , Non-commercial holdings and international soybean prices Source: Bloomberg Non-commercial holdings and international corn prices Non-commercial holdings Corn price Source: Bloomberg

13 SOYBEANS Snapshot of the market 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 CORN Snapshot of the market 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 COFFEE Snapshot of the market 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 BEEF Snapshot of the market 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 SUGAR AND ETHANOL Snapshot of the Market 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 Brazil: Robson Rodrigues Pereira / Andréa Bastos Damico / Igor Velecico / Ellen Regina Steter / Leandro de Oliveira Almeida / Andrea Marcos Angelo Brazilian sectors: Regina Helena Couto Silva / Priscila Pacheco Trigo Proprietary survey: Fernando Freitas / Leandro Câmara Negrão Internships: Ariana Stephanie Zerbinatti / Thomaz Lopes Macetti / Victor Hugo Carvalho Alexandrino da Silva / Davi Sacomani Beganskas / Ives Leonardo Dias Fernandes / Henrique Neves Plens / Mizael Silva Alves

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