MONTHLY AGRIBUSINESS BRAZIL MONTHLY AGRIBUSINESS BRAZIL. Macroeconomic Outlook. March 2017

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1 MONTHLY AGRIBUSINESS BRAZIL MONTHLY AGRIBUSINESS BRAZIL March 2017 Macroeconomic Outlook Another quarter of negative GDP growth at the end of 2016 (-0.9% in 4Q2016) did not change our forecast that the economy will grow by 0.3% GDP in The latest data suggests that the economy is treading on a steadier path towards stabilization in the first quarter. A record grain harvest is expected, which was again revised upwards. The positive outlook for the BRL, reflecting improvements in terms of trade, narrower sovereign risk spreads and the record harvest led us to revised our forecast for the BRL from 3.30/USD to BRL3.10/USD for 2017 year-end, and from 3.40 to 3.25 for YE In addition to a stronger BRL, lower food inflation (on the back of the record harvest) will likely lead consumer inflation to recede to 3.9% by the end of 2017, well below the Central Bank s inflation target of 4.5% and below our previous forecast of 4.2%. For the next year, we kept our inflation forecast unchanged at 4.5%, reflecting our belief that the Central Bank will cut the Selic policy rate more aggressively (we revised our year-end forecast from 9% to 8.5%). At its last monetary policy meeting, the Central Bank of Brazil signaled an increase in the probability that it will accelerate the pace of easing, conditioning larger rate cuts to structural issues as well as to inflation expectations and the balance of risks. There have been signs that the global economy may be growing faster than previously expected, especially in the developed economies. This has driven commodity prices upwards, benefiting Brazil s terms of trade. In the U.S., the Federal Reserve continued its path towards normalization, and more rate hikes are expected over the remainder of the year. In Europe, risks of deflation appear to have fallen significantly on the back of stronger growth, and inflation appears to be on course to converge to the target of just under 2.0%, leading us to believe that the ECB will not renew its asset purchases program in Finally, Parliament approved the beginning of negotiations for the Finally, Brexit s next steps will also be on the radar, since the UK Parliament approved the start of negotiations. Executive Summary Soybeans - Despite an increase in global supply, international prices will likely trend higher, reflecting rising global consumption. On the other hand, domestic prices will likely remain subdued because of the record Brazilian harvest. Corn Similarly to soy, despite an increase in global supply, international prices will likely trend higher, reflecting rising global consumption. On the other hand, domestic prices will likely remain subdued because of the record Brazilian harvest. Coffee International and domestic prices have been rising, reflecting the fact that supply is more aligned to demand and the low biannual yield for Arabica coffee in Brazil. Although domestic production of robusta coffee is rising, it will remain below its potential in Espírito Santo, where plantations were badly affected by the drought. Cattle Prices will continue to present a downward trend, due to poor domestic consumption and the increase in the supply of animals ready for slaughter, in response to the greater supply of calves. Despite the recent events related to investigations into alleged breaches of sanitary regulations, we believe that restrictions to meat purchases from Brazil by key markets will be removed in the short time, as some countries have already done. Sugar and Ethanol International sugar prices have softened because of the combination of lower global production deficits and the liquidation of positions acquired by the investment funds. Domestic prices of ethanol tend to fall with the introduction of the new crop starting in April.

2 Soybean Despite an increase in global supply, international prices will likely trend higher, reflecting rising global consumption. On the other hand, domestic prices will likely remain subdued because of the record Brazilian harvest SOYBEANS Fundamentals The USDA disclosed the 11th report for the 2016/17 grain crop, which has already been harvested in the United States and is being harvested in Brazil and Argentina. The estimate for the U.S. harvest was unchanged at million tons, reaching record levels, up by 8.9% expansion relative to the previous harvest. For Argentina, the USDA estimates a harvest of 55.5 million tons. For Brazil, the USDA raised its estimate from 104 to 108 million tons, converging towards the volume estimated by Conab. The global stock-to-consumption ratio is estimated at 25.0%, a level slightly higher than that recorded in the last harvest (24.3%). World consumption estimates have been revised upwards for the past four months, indicating a 5.3% increase compared with the previous harvest. Conab disclosed the sixth estimate for the 2016/17 crop, which is already being harvested in Brazil. With favorable weather conditions expected during the period, the outlook is for production to return to the levels seen before the 2016 crop failure. If the forecasts are accurate, production should reach a record high of 12.8%, totaling million tons, compared to 95.4 million in the last harvest. Compared to last month s report, Conab revised its yield estimates upwards, from to million tons, which reflects the improved yield estimates. Despite the expansion of the global supply of the three largest exporters - Brazil, the U.S. and Argentina - international prices will likely continue to trend higher on the back of rising global consumption. On the other hand, domestic prices will likely continue to recede in the coming months, reflecting the record Brazilian harvest National production of soybeans 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 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 16/17* Source and estimate: Conab Soybean producer price Paraná in R$ per 60 kg bag 90,0 80,0 70,0 60,0 73,92 61,83 80,96 63,89 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 10,0 fev/00 fev/01 19,98 fev/02 fev/03 fev/04 fev/05 22,57 fev/06 fev/07 fev/08 fev/09 fev/10 fev/11 fev/12 fev/13 fev/14 fev/15 fev/16 fev/17 dez/ , , , International soybean prices (US$ cents/bushel) 1.200, ,0 800,0 600, ,0 jan/ jan/01 jan/ jan/03 jan/04 jan/ jan/06 jan/07 jan/ jan/09 jan/10 jan/ jan/ jan/13 jan/14 jan/ jan/16 jan/17 dez/ Source: Bloomberg 3

4 Corn Similarly to soy, despite an increase in global supply, international prices will likely trend higher, reflecting rising global consumption. On the other hand, domestic prices will likely remain subdued because of the record Brazilian harvest CORN Fundamentals The USDA disclosed the 11th report for the 2016/17 harvest. The estimate for U.S corn production was maintained at million tons, reaching record levels, up by 11.4% compared to the previous harvest. In the case of Argentina, the estimate was revised from 36.5 to a record 37.5 million tons. For Brazil, the USDA also revised its supply estimate from 86.5 to 91.5 million tons, above Conab s expected production of 88.9 million tons. The global stock-to-consumption ratio was maintained at 21.2%, very similar to last harvest s ratio of 21.9%. The expectation for global consumption also was revised upward by an additional 6.4 million tons, an expansion of 0.6% compared with the previous month's report. Compared to the last harvest, the estimated global demand represents an increase of 8.2%. Conab disclosed the sixth estimate for the 2016/17 grain crop for Brazil, which is already being harvested. With favorable weather conditions, production will likely return to the levels seen before last year s crop failure. Therefore, total corn yield is expected to reach 88.9 million tons, which amounts to a 33.7% growth when compared with the previous harvest. The first harvest, which did not experience a significant decline in yield in the past year, is expected to reach 29.3 million tons, a 13.3% increase compared to the previous harvest. The second harvest - which experienced a significant reduction in productivity in the previous period due to the drought - should recover its yield potential. Thus, the Brazilian harvest should reach a record level of 59.7 million tons, representing a 46.7% increase compared to Compared to last month s report, Conab revised the first harvest estimates upwards, from 28.8 to 29.3 million tons, which is due mostly to the improved yield estimates. For the second harvest, expected to begin in June, estimates fluctuated from 58.6 to 59.7 million tons. With the strong expansion of corn production in Brazil this year, exports may represent a surplus outflow channel. A total of 18.9 million tons were exported during the last harvest, and this year Conab estimates that an additional 5.1 million tons should be shipped, totaling 24 million tons. Mexico - the world s second largest importer - may also present an opportunity for Brazilian producers if the tensions with the U.S. spillover to trade between the two countries. Mexico imports almost 40% of its yearly domestic consumption, equivalent to 14 million tons. This year, Argentina will have an exportable surplus of 3.3 million tons, while Brazil will have a 5.1 million ton surplus compared to the last crop. The expansion of the global supply of corn should be counterbalanced by the expansion of world consumption, promoting the increase of international prices. On the other hand, domestic prices should remain low in the coming months, with the advance of record Brazilian crop harvesting Domestic corn production in 000 tons /91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/ / / / / / /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 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 16/17* 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 25,28 20,0 15,0 10,0 11,40 18,96 16,26 10,44 14,14 13,07 17,26 19,17 Source: Deral Production and Estimate: BRADESCO 5,0 fev/00 7,05 fev/01 fev/02 fev/03 fev/04 fev/05 fev/06 fev/07 fev/08 fev/09 fev/10 fev/11 fev/12 fev/13 fev/14 fev/15 fev/16 fev/17 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/14 jan/ jan/16 jan/17 dez/ Source: Bloomberg 5

6 Coffee International and domestic prices follow an upward trend, reflecting a global offer that is more adjusted to consumption and low biannual yield for Arabica in Brazil. Despite the expected improvement of the Brazilian production of Robusta coffee, production will remain below its potential in Espírito Santo, which was badly affected by the drought COFFEE Fundamentals In December, the USDA released the half-yearly report for the 2016/17crop, which has already been harvested in Brazil and is still being harvested in other producing countries. According to the report, the stock-to-consumption ratio increased from 20.9% to 21.7%, still below last harvest s figures (22.9%). The estimate for the Colombian supply increased from 13.3 to 14.5 million bags between June and December. Note that Colombia has been increasing its annual production since For Vietnam, the estimate was revised downwards, from 27.3 to 26.7 million due to last year s drought. For Brazil, the USDA revised the supply estimate from 55.9 to 56.1 million bags, reflecting the improvement in the expected production of Arabica coffee, which increased from 43.8 to 45.6 million bags. On the other hand, the estimated production of Robusta coffee dropped from 12.1 to 10.5 million bags, due to the drought experienced in Espírito Santo. The next USDA report will be released in June. In January, Conab released the first report for the 2017/18 crop, which will begin to be harvested in April. Considering the average intervals, the expected total coffee production is 45.6 million bags. The amount corresponds to an 11.3% decrease compared to the previous harvest, which reflects the low biannuality of Arabica coffee, whose production was estimated at 36.5 million bags, a 16.0% drop on the same basis of comparison. The estimated production of Robusta coffee is 9.1 million bags, a 14.3% increase on the same comparison basis. The high estimate can be explained by the improved weather forecasts for the producing regions in Rondônia, Bahia and Espírito Santo, and the ensuing recovery. International prices continue to trend higher, reflecting global supply conditions that are more adjusted to demand and low biannual yield in Brazil. Arabica production is estimated to decline up to 16.0%. On the other hand, production of Robusta coffee is expected to expand 14.3% due to increased productivity. Nevertheless, the production will still be below the potential of 12 million bags, which corresponds to the average volume produced during the period prior to the drought in Espírito Santo. Domestic prices should follow the same trend as international prices 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 17/18* Source and estimate: Conab 6

7 750,0 Arabica coffee São Paulo in US$ per 60 kg bag 650,0 550,0 530,8 480,1 556,7 560,6 450,0 350,0 250,0223,6 239,8 337,0 230,4 291,4 269,8 247,5 328,0 491,1 408,6 424,0 366,3 247,7 150,0 50,0 Source: BMF BOVESPA 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/17 325,0 275,0 225,0 175,0 125,0 115,06 75,0 99,48 63,07 65,95 67,78 127,53 272,07 197,02 180,03 152,04 131,18 96,55 142,45 108,67 150,03 117,62 160,47 138,62 118,14 146,25 International Coffee Prices in US$ cents/ Lb 25,0 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 jan/17 dez/17 Source: Bloomberg 7

8 Cattle Cattle prices will continue to present a downward trend, due to poor domestic consumption and the increase in the supply of animals ready for slaughter, in response to the greater supply of calves. Despite the recent events related to investigations into alleged breaches of sanitary regulations, we believe that restrictions to meat purchases from Brazil by key markets will be removed in the short time, as some countries have already done BEEF Fundamentals In the first two months of 2017, beef exports fell 6.0% in volume compared with the same period last year, reflecting the decrease in purchases in Latin America, Europe and Egypt. On the other hand, shipments to China increased 66.1%. China accounted for 16.0% of Brazilian exports of beef in the first quarter of this year, while last year it accounted for 5.0%. In 2016, Brazilian beef shipments declined 0.9%. During the first half of last year, exports grew because of the opening of new markets to Brazilian beef. Countries with the highest growth rates include the United States (8.0%), the Middle East (14.3%) and China (69.0%). In the case of Venezuela and Russia, shipments were reduced by 76.0% and 22.5%, respectively. Note that the economies of these two countries depend on the production of oil, a commodity whose prices have experienced a significant drop last year. As a result of the retention of cows in recent years, the domestic supply of calves is expanded, leading to lower cattle prices calf prices have dropped more than 10.0% since the middle of last year. Thus, the exchange ratio between cattle for slaughtering and calves is better, even with the recent drop in cattle prices. This uptrend will allow an increased supply of cattle for slaughtering in the short and medium terms. Domestic consumption of beef, which corresponds to approximately 80.0% of total demand, will continue at low levels in the short term, reflecting the high unemployment rates. The investigation into some local producers and Ministry of Agriculture auditors for alleged breaches of sanitary regulations led several countries to suspend temporarily meat purchases from Brazil. If these restrictions remain in place for all countries for an extended period, some production destined for the export market may be redirected to the domestic market, depressing local prices further until producers are able to adjust supply or recover the markets. The medium-term outlook for the sector will depend on resolving these issues and the removal of restrictions to imports from Brazil in key markets, as some countries (such as China and Hong Kong) have already done 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 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 Live cattle producer price São Paulo in R$ per arroba 40,0 20,0 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 Source: Cepea

10 Sugar and Ethanol International sugar prices have softened because of the combination of lower global production deficits and the liquidation of positions acquired by the investment funds. Domestic prices of ethanol tend to fall with the introduction of the new crop starting in April SUGAR AND ETHANOL Fundamentals The next half-yearly report regarding the 2016/17 sugar harvest will be released by the USDA in May. The latest report, issued in November, had indicated a reduced estimate of the global deficit between production and consumption, whose previous estimate of 4.3 million tons was reduced to 2.6 million tons. In the previous harvest, this deficit had reached 6.7 million tons. Thus, the estimated stock-toconsumption ratio dropped from 19.0% to 17.7%, remaining below the 22.0% recorded in the last harvest. In December, Conab released the 3rd report for the 2016/17 harvest. Sugar cane production was revised upwards between August and December of last year, from to million tons. Compared to the previous crop, the production will increase by 4.4%, as a result of improved weather conditions and the expanded harvest area. Sugar production is estimated at a record level of 39.8 million tons, an 18.9% increase from the last harvest. Furthermore, ethanol production has not undergone any relevant revision and is estimated at 27.9 million liters, an 8.5% drop from the previous harvest. In April, Conab will disclose the next report with the closing of the figures for the 2016/17 crop and the first estimate for the 2017/18 crop, when harvesting will begin. Along with favorable weather, with regular rainfall, the current price levels could help boost production. Nevertheless, analysts have not reached a consensus regarding the size of the next crop. In any event, the cane field renewal during the last harvest was 10.0%, on average, below the optimal level of 17.0%, which may limit the crop growth. According to Unica, a total of million tons of sugar cane were processed in South-Central Brazil by March1 a 0.4% decrease compared to the last harvest. The current crop is more focused on sugar, reflecting the improvement in commodity prices throughout the year. Thus, sugar production was 15.3% greater and ethanol production was 8.2% lower than the previous harvest. Last year, sales of hydrated ethanol fell 18.3%, and in January of this year, they experienced a new decline of 27.7%. In the same comparison, gasoline sales rose 4.6% in 2016 and an additional 12.0% in January Consumer preference for gasoline reflects the high ethanol prices, which caused the gasoline/ethanol ratio to exceed 75.0%. Fonte International e projeção : Conab sugar mil toneladas Produção prices Nacional tend to remain Elaboração. Bradesco de Cana-de-Açúcar at the current level, reflecting the combination of lower global production deficits and the liquidation of positions acquired by the investment funds. The introduction of the new harvest should help bring the prices of ethanol down in the domestic market 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-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 Source: BMF BOVESPA International sugar prices 20 in US$ Cents/ Lb 33,0 27,0 28,4 32,1 29,5 24,9 22,9 21,0 15,0 9,0 5,6 10,7 9,0 8,8 6,3 9,0 8,4 17,9 13,1 8,9 11,3 21,9 14,6 17,7 15,4 14,9 10,7 18,6 Source: Bloomberg 3,0 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 jan/17 dez/17 11

12 Harvest follow-up Non-commercial positions and international coffee prices Coffee price Non-commercial positions ,3 Source: Bloomberg 100 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 Soybean prices Non-commercial positions Non-commercial positions and international soybean prices , , 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 jun- Source: Bloomberg Non-commercial positions and international corn prices Corn prices Non-commercial position , Source: Bloomberg 300 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

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 Fernando Honorato Barbosa Economists: Ana Maria Bonomi Barufi / Andréa Bastos Damico / Ariana Stephanie Zerbinatti / 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/ Bruno Sanchez Honório / Christian Frederico M. Moraes / Fabio Rafael Otheguy Fernandes / Felipe Alves Fêo Emery de Carvalho/ Mariana Silva de Freitas / Rafael Martins Murrer