MONTHLY AGRIBUSINESS BRAZIL MONTHLY AGRIBUSINESS BRAZIL. Macroeconomic Outlook. July 2015

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1 MONTHLY AGRIBUSINESS BRAZIL MONTHLY AGRIBUSINESS BRAZIL July 2015 Macroeconomic Outlook Expectations regarding the handling of monetary policy continue to divide the attention of the market with the ongoing decline in Brazil s economic activity. The fiscal adjustment still depends greatly on the political scenario and tax revenue, which has been exceptionally weak. At the same time, the economic signals remain disappointing, pointing to period GDP shrinkage of 1.3% in the second quarter. In this context, it is worth noting the high level of industrial inventories, low business and household confidence and the deterioration in the job market (with increasing unemployment and slowing wage gains). Given these conditions, we have updated our economic scenario estimates for 2015 and We now expect GDP to fall by 2.1% in 2015 (versus our previous projection of a 1.8% decline) and remain flat in In addition, consumer inflation, as measured by the IPCA, closed the first half still under extreme pressure but should begin to slow from now on, recording 9.0% in 2015 and 5.2% in We expect the benchmark Selic interest rate and the exchange rate to close the current year at 14.25% and R$/US$3.20, respectively. The latest global figures continue to support our expectation that global GDP growth in 2015 will be slightly lower than last year (3.1%, versus 3.4% in 2014). The Chinese economy remains weak and the country s hefty stock market collapse has heightened uncertainties regarding a second-half recovery. We believe the Chinese slowdown will follow a smooth and ordered path, but it will be important to keep a close eye on the implications of the stock market correction. Internal conditions in the U.S. economy continue to strengthen, but there are considerable risks associated with the international scenario. There are two fundamental external variables that could have an adverse impact on American GDP and employment, therefore affecting monetary policy decisions. The first is global GDP and the second is the behavior of the dollar in relation to the other leading currencies. Despite progress in regard to the Greek crisis, worries over the global scenario will lead to a cautionary approach on the part of the Fed, which is likely to begin normalizing monetary policy in December of this year. Executive Summary Soybeans High global stocks, due to the substantial and record harvests in the United States and Brazil, respectively, should keep prices down. Doubts over the magnitude and duration of El Niño should ensure substantial volatility in the grain market in the months ahead. Corn Domestic prices should remain low, reflecting the record output from Brazil s second corn crop, while international prices should remain high, benefiting from the decline in U.S. planted area in favor of soybean. Coffee Prices should remain volatile, reflecting concerns over the diverse impacts of El Niño on the crops in the various producing countries. International prices will tend to move down due to the upturn in global production, while domestic prices should remain high, reflecting the trajectory of the exchange rate. Cattle Prices should continue on their seasonal upward trajectory, but the poor performance of exports and domestic consumption should limit the upturn. Sugar and Ethanol The better adjustment of global supply should favor an increase in international sugar prices. Nevertheless, stocks, although more balanced, are still high, imposing limits on the upturn. Ethanol prices should remain high thanks to increased consumption to the detriment of gasoline.

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 High global stocks, due to the substantial and record harvests in the U.S. and Brazil, respectively, should keep prices down. Doubts over the magnitude and duration of El Niño should ensure substantial volatility in the grain market in the months ahead Fundamentals The USDA s 3rd 2015/16 harvest survey revised its U.S. soybean production estimate up from to million tonnes. The report also pointed to a reduction in global stocks and a consequent decline in the stocks to use ratio to 30.0%, versus 30.5% in the previous month. But this is still the highest ever level. In the case of Brazil, the USDA estimated output of 97 million tonnes, up by 2.6%. The U.S. soybean crop is already entirely planted. Favorable weather and good growing conditions should ensure that output reaches the projected figure of 105 million tonnes. Conab s tenth 2014/15 harvest survey pushed up its soybean production estimate for the fourth consecutive quarter, reflecting the upturn in estimated planted area and improved yield due to increased rainfall. Production is expected to reach 96 million tonnes, 11.7% more than in the previous harvest and a new record. The grain market is expected to be highly volatile in the coming months due to doubts among the meteorologists concerning the magnitude and duration of El Niño. Estimates of healthy harvests in the U.S. and Brazil should ensure that global stocks remain high. In fact, the global stocks to use ratio is estimated at 30.5%, the highest ever recorded figure, which should also keep prices down. em mil toneladas Produção Nacional de Soja Fonte e Projeção: CONAB Elaboração: Bradesco 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 50,0 43,93 48,15 44,37 45,68 73,92 61,83 58,87 56,80 53,38 50,53 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 Domestic prices should remain low, reflecting the record output from Brazil s second corn crop, while international prices should remain high, benefiting from the decline in U.S. planted area in favor of soybean Fundamentals The USDA s 3rd survey of the 2015/16 harvest increased its estimate of Brazilian corn production from 75 to 77 million tonnes and lowered its estimate for U.S. output from million to million tonnes, reflecting the expected reduction in planted area. Planting has already been concluded in the United States and more than 70% of the crop is in good conditions. The USDA also lowered its stocks estimate, in turn reducing the stocks to use ratio from 19.7%, last month, to 19.2%. Conab s tenth 2014/15 harvest survey increased its production estimate for Brazil s 2nd corn crop, currently being harvested, to a record 51.5 million tonnes, 6.5% up on the previous year and 4.4% more than last month s estimate. In the case of the 1st crop, already harvested, Conab lowered its yield and planted area estimates, giving expected output of 30.3 million tonnes, 4.4% down on the harvest before and 1.8% less than in the previous month s survey. The total corn harvest is estimated at 81.8 million tonnes, 2.2% up on the previous season. The record 2nd crop should ensure that domestic prices settle at lower levels, while international prices should record a slight upturn, reflecting the reduction in U.S. planted area in favor of soybean. em mil toneladas Produção Nacional de Milho Fonte e Projeção: Conab 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 15,0 11,95 10,0 22,28 11,40 18,96 16,26 10,44 24,94 14,14 13,07 26,92 23,29 19,96 17,84 17,26 19,17 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 Prices should remain volatile, reflecting concerns over the diverse impacts of El Niño on the crops in the various producing countries. International prices will tend to move down due to the upturn in global production Fundamentals At the end of June, the USDA disclosed its six-monthly survey of the 2015/16 coffee crop, which is currently being harvested in Brazil. Harvesting in the other producing countries will begin in October. Global production is estimated at million 60 kg bags, 4.4% (or 6.4 million bags) up on the previous season. The expected expansion will be generated by various countries, including the leaders, such as Brazil, Vietnam and Colombia, as well as Indonesia and the African producers. Global consumption is estimated at million bags, up by 1.2%. Stocks are expected to be lower than for the previous crop, reducing the stocks to use ratio from 23% to 21.4%. Also in June, Conab published its second survey of Brazil s 2015/16 coffee crop, which indicated total production of million 60 kg bags, 2.4% down on the previous season due to the lack of rainfall in the Southeast. Conillon output is estimated at million bags, 13% less than in the previous harvest, while arabica production is expected to reach million bags, up by 1.9% in the same period, even though the current harvest is the lower of the two-year cycle. The arabica upturn is chiefly due to the recovery of output in Paraná, which had been badly hit by frosts last year, and the inversion of the twoyear cycle in the Zona da Mata region of Minas Gerais. However, production in the other producing regions, such as São Paulo and the Minas Gerais cerrado (savannah), is expected to drop by 16.4% and 12.5%, respectively. The next survey will be published in mid-september. The coffee harvest is between 15% and 20% behind the same period in the previous harvest in terms of volume due to the higher rainfall this year. The meteorology services have confirmed the occurrence of El Niño in the second half of the year, implying increased rainfall in Brazil s Center-South region and drier weather in Asia. Consequently, the weather may benefit coffee yields in Brazil and lead to poor harvests in Vietnam and Indonesia, impossible to quantify as yet, which jointly account for 26% of global output and 30% of exports. Concerns over the development and diverse effects of El Niño on the various producing countries should Produção Nacional de Café Fonte e projeção (*): Conab Elaboração: Bradesco ensure that prices remain volatile in the coming months. International prices should remain low, reflecting the expected increase in global production. 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 590,0 540,0 490,0 530,8 529,4 440,0 390,0 340,0 290,0 337,0 291,4 269,8 328,0 457,8 408,6 387,5 366,3 424,0 240,0223,6 190,0 239,8 230,4 245,8 247,5 282,2 247,7 140,0 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 96,55 131,18 152,04 142,45 108,67 150,03 117,62 136,75 67,78 25,0 Source: Bloomberg 7

8 BEEF Cattle Prices should continue on their seasonal upward trajectory, but the poor performance of exports and domestic consumption should limit the upturn Fundamentals In the year through June, beef exports fell by 18% over the same period last year with declines in the volumes shipped to the main destinations of Russia (-37%) and Venezuela (-47%), reflecting 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 U.S. market was officially opened to Brazilian beef exports this month, although shipments will only begin after sanitary inspections of the country s meatpacking plants, which should take place by August, and the granting of a sanitary certificate attesting to the fact that the plants are fit to export to the U.S. According to Abiec (the Brazilian meat exporters association), Brazil could ship between 15,000 and 20,000 tonnes to the United States this year as of August (1.5% of annual export volume), which should rise to 100,000 tonnes by The most positive effect lies in the possibility of opening new markets, such as Japan, Mexico and Canada, which usually mirror U.S. decisions. China also lifted its embargo on Brazilian beef, which had been in place since In any event, a clearer picture of the impact on beef exports should emerge as of next year. Domestic beef consumption is expected to slow, reflecting the deterioration in the job market and a consumer shift to chicken, whose prices are more affordable. The supply of animals ready for slaughter will remain exceptionally tight, due to the slaughter of females in previous years, leading to an increase in bull-calf prices. In fact, the slaughter rate in the first five months fell by 10% over the same period last year. El Niño should lead to more regular rainfall in Brazil s Center-South, benefiting pasture. In line with seasonality, cattle prices should remain high in the coming months, reflecting the restricted supply of animals ready for slaughter and the impact of the dry cold weather on pasture. However, the poor export performance and the reduction in domestic consumption, which accounts for 80% of total beef demand, should limit the upturn. Exportações Brasileiras de carne bovina Em toneladas Fonte: Secex Elaboração: 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 jan fev mar abr mai jun PREÇO AO PRODUTOR - PRAÇA SP Elaboração e Projeção: Bradesco jul ago set out nov dez 160,0 140,0 120,0 100,0 80,0 93,3 74,5 109,6 125,2 108,4 106,9 97,0 90,8 150,7 144,0 142,0 Live cattle producer price São Paulo in R$ per arroba 60,0 61,8 51,7 40,0 42,2 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 The better adjustment of global supply should favor an increase in international sugar prices. Nevertheless, stocks, although more balanced, are still high, imposing limits on the upturn. Ethanol prices should remain high thanks to increased consumption to the detriment of gasoline Fundamentals The most recent surveys of the 2015/16 crop were published by Conab in April and by Unica and the USDA in May, all of which indicating an increase in sugarcane production, favored by improved rainfall in the Center-South. Conab estimated output of million tonnes, 3% up on the previous harvest, and Unica expected 590 million tonnes, up by 3.3%, while the USDA pointed to a 0.4% upturn in Brazilian sugar production. Conab s next survey is due in mid-august and the USDA s at the end of November, while Unica normally publishes a report between September and October. In May, the USDA estimated a better balance between global supply and demand, with a 1.3% increase in sugar consumption and a 0.5% decline in production, with Indian output falling by 1.5%, due to the reduction in planted area). As a result, the stocks to use ratio should fall from 26% to 23.4%. The effects of El Niño, such as more regular weather, could benefit sugarcane yield, although the harvest could be jeopardized by excessive rainfall. El Niño may also result in drier weather in Asia, leading to poor harvests in India and Thailand, which jointly account for almost 25% of global sugar production. The beginning-of-year increase in gasoline prices led to a 5.4% year-on-year reduction in consumption in the first five months, favoring ethanol, whose consumption climbed by 34.9% in the same period. International sugar prices remain on a slight upward trajectory, reflecting the improved global supply Fonte e projeção : Conab mil toneladas Elaboração. adjustment. Bradesco However, Produção we Nacional should de not Cana-de-Açúcar expect any significant upturns, given that global stocks, although better adjusted, are still high. Ethanol consumption to the detriment of gasoline is likely to continue, favoring an increase in ethanol prices in the coming months 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 AÇÚCAR ÁLCOOL 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 15,0 13,1 14,6 15,4 13,6 Source: Bloomberg 9,0 5,6 3,0 10,7 9,0 8,8 6,3 9,0 8,4 8,9 11,3 12,3 11

12 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul jun-09 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul jun-09 Harvest follow-up Posições Não Comerciais e Preços Internacionais de café Fonte: Bloomberg Elaboração: Bradesco US$ c / libra em número de contratos Non-commercial holdings and international coffee prices Non-commercial holdings Coffe prices 304, , , , Source: Bloomberg US$ c / bushel Non-commercial holdings Soybean prices em número de contratos , ,3 0 Non-commercial holdings and international soybean prices Source: Bloomberg Non-commercial holdings and international corn prices US$ cents por bushel 850 Non-commercial holdings Corn 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: Igor Velecico / Andréa Bastos Damico / Ellen Regina Steter / Myriã Tatiany Neves Bast / Ariana Stephanie Zerbinatti Brazilian sectors: Regina Helena Couto Silva / Priscila Pacheco Trigo / Leandro de Oliveira Almeida Proprietary survey: Fernando Freitas / Leandro Câmara Negrão Internships: Thomaz Lopes Macetti / Victor Hugo Carvalho Alexandrino da Silva / Davi Sacomani Beganskas / Ives Leonardo Dias Fernandes / Henrique Neves Plens / Mizael Silva Alves