MONTHLY AGRIBUSINESS BRAZIL MONTHLY AGRIBUSINESS BRAZIL. Macroeconomic Outlook. June 2017

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1 MONTHLY AGRIBUSINESS BRAZIL MONTHLY AGRIBUSINESS BRAZIL June 2017 Macroeconomic Outlook We recently revised our GDP forecasts and now expect flat growth in 2017 and 2.0% growth in Although GDP growth reached 1% q/q in the first quarter, this was mostly driven by the agricultural sector, and both manufacturing and the services sector remain sluggish. We forecast that GDP will contract by about 0.3% in the second quarter, which if confirmed will likely raise questions about the performance of the economy in 2H17. The outlook on Brazil s sovereign credit rating was lowered to negative last month, with negative implications for the BRL. However, FX intervention by the Central Bank, strong FX flows and a favorable external environment helped offset the adverse domestic backdrop. We revised our YE exchange-rate forecasts from BRL/USD 3.10 to BRL/USD 3.20 in 2017 and from BRL/USD 3.25 to BRL/USD 3.30 in We also lowered our consumer inflation forecasts to 3.4% in 2017 and 4% in Disinflation, meanwhile, will allow the Central Bank to continue to cut the Selic policy rate, which we forecast will end the year at 8%, providing some support for the BRL going forward. While the U.S. and Chinese growth forecasts dipped slightly last month, the outlook for Europe has improved marginally. Going forward, we see some asymmetric risks for additional slowdown of activity, albeit spread over a longer horizon. Combined with improved inflation dynamics, this deceleration would slow the downward bias for global liquidity, as the world s leading economies are likely to keep their expansionary policies for a longer period. Executive Summary Soybeans International prices should remain relatively high, reflecting a decline in production in North America and increased consumption. Global inventories at comfortable levels will limit this pressure. Domestic prices will likely not decline significantly, as a large part of the crop has already been harvested. Corn International prices continue rising in a controlled manner, due to the weaker harvest. Although lower than the last harvest, comfortable inventory levels will limit this high. Domestic prices could drop further, as a record Brazilian harvest moves into full swing and the second harvest intensifies in June. Coffee International prices should remain moderately high in the coming months, reflecting the reduced ratio between inventories and global consumption and the Brazilian crop s off year in the biennial production cycle. Domestic prices will remain high due to the smaller Brazilian crop. Cattle Cattle prices will remain at low levels, reflecting the combination of low domestic demand, low export volumes and increased numbers of animals ready for slaughter, which considers the retention of cows in recent years. Sugar and Ethanol As a result of the global production surplus, international sugar prices should continue at low levels, without any tendency to rise. Due to a lower ethanol production forecast, the prices should rise, but the high will be limited by a drop in petroleum and consequent gas prices, and by ethanol import volumes.

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 15/16 16/17* SOYBEANS Soybean International prices should remain relatively high, reflecting a decline in production in North America and increased consumption. Global inventories at comfortable levels will limit this pressure. Domestic prices will likely not decline significantly, as a large part of the crop has already been harvested Fundamentals The USDA released the 2nd report for the 2017/18 grain harvest, which was already planted in the U.S. and will start being planted in Brazil and in Argentina in September. U.S. sugar cane production is estimated at million tons, or 1% lower than the previous harvest (117.2 million tons). Planted acreage is expected to be up 7.1%, but North American productivity is forecast to drop 7.9%. Global consumption is expected to grow 3.9%. Therefore, the global stock-to-consumption ratio is estimated at 26.8%, down from 28.1% in the last harvest. Despite the decline in production, global stocks remain at comfortable levels because of the last four strong harvests. Argentine production next year is projected at 57 million tons, unchanged relative to the current harvest. For Brazil, the USDA forecasts production of 107 million tons, or 6.1% lower than the current harvest (114.0 million tons). Conab published its ninth estimate for the 2016/17 harvest, which is in the final stages in Brazil. Production is expected to reach a record high of million tons, up 19.4% (or 18.5 million tons) from the previous harvest. Compared to last month s report, Conab revised its estimate upwards for the sixth consecutive month, this time from to million tons, which reflects the improved yield estimates. Domestic soy prices have retreated since the beginning of the year, reflecting positive surprises for the Brazilian crop estimates. Prices should stabilize going forward, as most of this year s crop has already been harvested. In addition, over the next few months, the outlook for the U.S. harvest will become the main driver of the market. The expected decline in U.S. output and increased global consumption should favor higher international prices in the second half of the year. However, pressure on prices will likely be em mil toneladas limited by comfortable global inventory levels. Produção Nacional de Soja Fonte e Projeção: CONAB Elaboração: Bradesco National production of soybeans in 000 tons Source and Estimate: Conab 2

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 jan/16 jan/17 dez/17 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 jan/17 dez/17 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 16/17* Soybean productivity in kg per hectare em R$ por saca de 60 kg Source and estimate: Conab SOJA EM GRÃO Fonte: Deral PR PREÇO AO PRODUTOR - PRAÇA Production: PR Elaboração BRADESCO e Projeção: Bradesco Soybean producer price Paraná in R$ per 60 kg bag 90,0 80,0 70,0 60,0 73,92 61,83 80,96 57,95 50,0 43,93 48,15 44,37 45,68 50,53 53,38 40,0 30,0 26,63 32,42 28,62 39,81 30,59 40,14 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) 1.200, ,0 800,0 600, , 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 15/16 16/17* CORN Corn International prices should remain relatively high, due to the weaker U.S. harvest. Although lower than the last harvest, comfortable inventory levels will limit this high. Domestic prices could drop even further, as a record Brazilian harvest moves into full swing and the second harvest intensifies in June Fundamentals The USDA released the 2nd report for the 2017/18 grain harvest, which was already planted in the U.S. and will start being planted in Brazil and in Argentina in September. U.S. production is estimated at million tons, or 7.1% lower than the previous harvest. Planted acreage, most of which is reserved for soy production, will be 4.3% smaller. Expected yield are 2.2% lower. Global consumption is set to grow 0.7%. The stock-to-use ratio is estimated at 18.3%, below the 21.3% recorded in the previous harvest. Despite the decline in U.S. production, global inventories are at a comfortable level because of the strong harvests in the last four years. Argentina is expected to produce 40 million tons, same volume of the crop currently being harvested in the country. For Brazil, the USDA forecasts a harvest of 95 million tons, or 2.1% lower than the current harvest (97 million tons). Conab disclosed the ninth estimate for the 2016/17 grain crop for Brazil, which is already being harvested. Total corn production should reach 93.8 million tons, 39.5% above last year s harvest, the equivalent of 26.3 million tons. The first harvest is expected to yield 30.3 million tons, or a 17.7% increase. Meanwhile, the second harvest which last year was significantly affected by a drought is expected to make a full recovery and grow by 55.8% relative to last year, to 63.5 million tons. Compared to last month s report, Conab increased the first harvest estimates slightly, from 30.2 to 30.3 million tons, which is due mostly to the improved yield estimates. For the second harvest, expected to begin in June, estimates vary between 62.7 and 63.5 million tons. Given the robust growth of Brazilian corn output in 2017, producers may look at exports as an outlet for surplus production. In the last harvest, 18.9 million tons were exported. For this year, Conab expects exports to rise by 7.1 million tons, for a total of 26 million tons. Still, domestic corn stocks should rise from 8 to 20 million tons, which amounts to 36% of consumption, up from 15% in Domestic prices have declined sharply in recent months, reflecting the first-harvest crop, as well as expectations for the second crop s record harvest to hit the market in June. In addition, positive revisions to the estimates have been occurring since the beginning of the year. Prices could drop further in the next few months, as the second harvest progresses. em mil toneladas Produção Nacional de Milho Fonte e Projeção: Conab International prices should follow a relatively high trend, reflecting the smaller North American crop. Although lower than the last crop, comfortable inventory levels will limit this high Domestic corn production in 000 tons Source and estimates: Conab 4

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 jan/05 97/98 98/99 jan/06 99/00 jan/07 00/01 01/02 jan/08 jan/00 02/03 jan/09 jan/01 03/04 04/05 jan/10 jan/02 05/06 jan/11 jan/03 06/07 jan/12 07/08 jan/04 08/09 jan/13 jan/05 09/10 jan/14 10/11 jan/06 11/12 jan/15 jan/07 12/13 jan/16 13/14 jan/08 14/15 jan/17 jan/09 15/16 dez/17 16/17* jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16 jan/ 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: Bradesco Source and estimate: Conab Corn producer price Paraná in R$ per 60 kg bag 45,0 40,0 35,0 39,98 30,0 25,0 22,28 24,94 26,92 23,29 24,34 Source: Deral 7,05 5,0 Production and Estimate: BRADESCO Milho - Bolsa de Chicago - CBOT Em US$ cents por bushel 20,0 15,0 11,95 10,0 11,40 Preço futuro 1º vencimento 18,96 16,26 10,44 14,14 Fonte: Bloomberg Elaboração e Projeção: Bradesco 13,07 17,26 19,17 20, 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 16/17 17/18* COFFEE Coffee International prices should remain moderately high in the coming months, reflecting the reduced ratio between inventories and global consumption and the Brazilian crop s off year in the biennial production cycle. Domestic prices will remain high due to the smaller Brazilian crop Fundamentals This month, the USDA released its 1st biannual report on coffee for the 2017/18 harvest. This crop is being harvested in Brazil and harvest will begin in other producing countries in October. Global production is estimated at million 60-kg bags, a slight 0.1% increase relative to the previous year. Despite increased production estimates for several producing countries, Brazilian production will be 7.1% lower due to being an off year in the biennial production cycle. The USDA estimates the Brazilian harvest at 52.1 million bags, compared to 56.1 million in the last harvest. Global consumption was estimated at million bags, up 1.3%. As a result, inventories should fall 3.2% and the ratio between inventory and global consumption will reach 21.6%, lower than the level recorded in the last two harvests (22.8% and 28.6%). The global surplus should total 1.7 million bags this year, compared to 3.6 million bags in The next USDA report will be released in December of this year. In May, Conab released the 2nd report for the 2017/18 coffee crop, which is currently being harvested. Total coffee production was revised downwards slightly (from to million bags). The Arabica coffee forecast dropped from 36.5 million bags to 35.4 million, 2.8% lower than the January estimate and 18.3% below last harvest, as it enters an off year in the biennial production cycle. Robusta coffee production is expected to grow from 9.1 to 10.1 million bags, 11% higher than the January forecast and 26.9% above last harvest (which suffered from drought conditions). Despite the improved forecasts, the Robusta harvest remains below its potential for 13 million bags, which was last seen before the crop failure of the past two years. The next Conab report will be published in September. International coffee prices have been falling since the beginning of the year due to investment funds selling their positions amid tightening supply concerns. Nevertheless, international prices should register moderate increases in coming months, reflecting a better balance between global supply and demand, Produção Nacional de Café Fonte e projeção (*): Conab Elaboração: Bradesco with decreased inventories and the off year in the Brazilian crop s biennial production cycle. Domestic prices will remain high due to a smaller 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 jan/16 jan/17 dez/17 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 jan/17 dez/17 Arabica coffee São Paulo in US$ per 60 kg bag 750,0 650,0 550,0 530,8 480,1 556,7 516,6 450,0 350,0 250,0223,6 239,8 337,0 230,4 291,4 269,8 247,5 328,0 408,6 424,0 366,3 247,7 467,6 150,0 50,0 Café em grão - Bolsa de Nova York - NYBOT Source: BMF BOVESPA Projeção de preço: média dos preços futuros Em US$ cents por libra peso Fonte: Bloomberg Elaboração: 325,0 275,0 225,0 175,0 125,0 115,06 75,0 99,48 63,07 65,95 67,78 127,53 272,07 197,02 180,03 152,04 131,18 96,55 142,45 108,67 150,03 117,62 118,14 160,47 138,62 128,25 International Coffee Prices in US$ cents/ Lb 25,0 Source: Bloomberg 7

8 BEEF Cattle Cattle prices remain low and still show no signs of an upward trend, reflecting the combination of weak domestic demand, low export volumes and increased numbers of animals ready for slaughter, as a result of retaining cows in recent years Fundamentals In mid-march, the Federal Police launched the operation Carne Fraca ( Weak Meat ), which uncovered illegal practices in the inspection of Brazilian meatpackers. The main buyers, including China, Hong Kong, Egypt, Saudi Arabia, South Africa and the European Union which together account for more than 50% of exports, immediately announced an embargo on Brazilian meat pending further investigations. Two weeks later, these countries lifted the temporary embargoes, but vowed to impose stricter control on shipments. As a result, beef shipments were extremely unpredictable in the first five months of the year and fell 10.5% in volume compared to the same period in In terms of value, exports fell 5.8% in the period. The domestic calf supply has risen due to the retention of cows in the last few years, leading to lower cattle prices. Calf prices have already dropped 22% since April last year. As a result, the exchange ratio between cattle for slaughtering and calves has improved, despite the recent drop in cattle prices. This uptrend will cause the supply of cattle for slaughtering to rise in the short and medium terms. The price of cattle dropped in April on the heels of the Weak Meat episode, but quickly returned to levels recorded prior to the operation. Good weather allowed producers to keep the cattle on the pasture, while they waited for prices to improve. The prices have since adopted a sharper downward curve since mid- May. The cattle prices will remain at low levels and with no tendency to increase, reflecting: (i) weak domestic consumption, affected by the still ongoing adjustments in the labor market; (ii) the growing supply of animals ready for slaughter, in response to an increase in the supply of calves; (iii) a drop in exports, which account for 20.0% of total demand and should grow less than originally expected. Exportações Brasileiras de carne bovina Em toneladas Fonte: Secex Elaboração: Bradesco Brazilian beef exports (in tons) jan fev mar abr mai jun jul ago set out nov dez Source: SECEX 8

9 jan/06 jan/07 jan/08 jan/09 jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16 jan/17 dez/17 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 jan fev mar abr mai jun jul ago set out nov dez PREÇO AO PRODUTOR - PRAÇA SP Elaboração e Projeção: Bradesco 160,0 140,0 120,0 100,0 80,0 60,0 61,8 93,3 74,5 109,6 106,9 90,8 108,4 125,2 97,0 150,7 157,7 148,1 125,2 129,1 Live cattle producer price São Paulo in R$ per arroba 40,0 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 16/17 17/18* SUGAR AND ETHANOL Sugar and Ethanol As a result of the global production surplus, international sugar prices should continue at low levels. Due to a lower ethanol production forecast, the prices should rise, but the high will be limited by a drop in petroleum prices and by ethanol import volumes Fundamentals The USDA released its biannual report with the first forecast for the 2017/18 sugar harvest in May. The report forecasts stable consumption and a 5.2% rise in production. The biggest output increases will come from the following producers: India (17.7%), European Union (12.7%), Thailand (12.3%) and Brazil (1.3%). After four consecutive harvests of production deficits, the current harvest is expected to record a surplus of 8 million tons. The next USDA report will be published in November. In April, Conab released its first forecast for the 2017/18 harvest. The report calls for a 2.3% decline in planted acreage. In São Paulo, the largest producing state, the area should be 4.5% smaller. Sugar cane production is estimated at million tons, or 1.5% lower than the previous harvest. Yield is expected to rise 0.9% as the weather improves in the Northeast. Reflecting the high returns for sugar, the harvest will once again be used primarily for commodity production, and should total 38.7 million tons, the same volume as the previous harvest. Meanwhile, ethanol production is expected to drop 4.9%. Production of anhydrous ethanol (mixed with gasoline) is expected to rise 2.8%, while hydrated ethanol should drop 10%. The next report from Conab will be published at the end of August. Unica released its first estimate for the 2017/18 harvest. Sugar cane production in the Center-South region is expected to reach 585 million tons, down 3.7% from the previous harvest, which came in at 607 million tons. Sugar production is forecast at 35.2 million tons (1.2% lower), while ethanol is at 24.7 million tons (a 3.7% drop). According to Unica, sugar cane processing up to the beginning of June for the 2017/18 harvest fell 20.9%, sugar 18.6% and ethanol 21.5% compared to the same period last year. Last harvest s grinding was extremely high at the beginning of the year, favored by the weather and by the unprocessed sugar cane from the previous harvest. Despite the lower volume of sugar processed in the beginning of this year, sugar prices continue low, reflecting the news of surplus with improved production in India and Thailand and investment funds sales. Gasoline sales grew 5.5% in 1Q17, after rising 4.6% in In the same comparison, hydrated ethanol sales have fallen 19.3% year-to-date, after an 18.3% drop in Ethanol prices fell 20% until April 2017, reflecting lower demand and higher exports. Ethanol imports reached 864,5 million liters in the first four months, surpassing the total volume imported last year (818 million tons). Fonte As a e projeção reflection : Conab of the mil toneladas Produção global production Elaboração. Bradesco Nacional de Cana-de-Açúcar surplus, international sugar prices should continue at low levels, without any tendency to rise. Due to a lower ethanol production forecast, the prices should rise, but the high will be limited by a drop in petroleum and consequent gas prices, and by ethanol import volumes 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 jan/16 jan/17 jan/18 dez/18 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 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 17/18* 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 20 in US$ Cents/ Lb 33,0 27,0 28,4 32,1 29,5 24,9 22,9 21,0 17,9 21,9 17,7 20,4 15,0 9,0 5,6 10,7 9,0 8,8 6,3 9,0 8,4 8,9 13,1 11,3 14,6 15,4 14,9 10,7 14,5 13,6 15,3 Source: Bloomberg 3,0 11

12 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May jun- May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Harvest follow-up Posições Não Comerciais e Preços Internacionais de café Fonte: Bloomberg Elaboração: Bradesco Non-commercial positions and international coffee prices Coffee prices Non-commercial positions ,75 Source: Bloomberg Soybean prices Non-commercial positions Non-commercial positions and international soybean prices , Source: Bloomberg Non-commercial positions and international corn prices Corn prices Non-commercial positions 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 Fernando Honorato Barbosa Economists: Ana Maria Bonomi Barufi / Andréa Bastos Damico / Constantin Jancso / Daniela Cunha de Lima / Ellen Regina Steter / Estevão Augusto Oller Scripilliti / Fabiana D Atri / Igor Velecico / Leandro Câmara Negrão / Marcio Aldred Gregory / Myriã Tatiany Neves Bast / Priscila Pacheco Trigo / Regina Helena Couto Silva / Thomas Henrique Schreurs Pires Internships: Alexandre Stiubiener Himmestein/ Christian Frederico M. Moraes / Felipe Alves Fêo Emery de Carvalho / Felipe Yamamoto Ricardo da Silva / Gabriela Soares de Faria / Mariana Silva de Freitas / Rafael Martins Murrer