MONTHLY AGRIBUSINESS BRAZIL MONTHLY AGRIBUSINESS BRAZIL January 2017 Macroeconomic Outlook The weak economy, falling inflation and inflation expectations (as well as a string of lower-than-expected inflation readings at the end of 2016) led the Central Bank of Brazil to lower the Selic policy rate by 75bps at its January meeting, and to signal it maintain the same pace of easing in the coming months. The latest data points to a stronger contraction of GDP in the fourth quarter (-0.8%) and suggests that the recovery will be more gradual and take longer than previously expected. We estimate that GDP declined by 3.6% in 2016 and forecast that it will grow by 0.3% in 2017. Despite weak headline GDP growth, we believe that the farming sector will experience a more robust performance and forecast Agricultural GDP to expand by 6% in 2017 (after declining by about 6% in 2016), outperforming both industry and services. This, in turn, supports our favorable view regarding the outlook for inflation, with additional decompression in food and service prices. IPCA consumer inflation ended 2016 at 6.3% and we forecast this measure of inflation to recede by 4.5% y/y by year-end. BRL appreciation in recent months also contributed to disinflation. We forecast the BRL to end 2017 at 3.45/USD and 2018 at 3.55/USD. Although the short-term outlook for the fiscal accounts deteriorated on the back of weak growth, there was important progress on the government s fiscal agenda. In particular, the government secured the approval by Congress of a constitutional amendment that limits spending growth to the previous year s inflation. For 2017, the main issues on the political front will be the debate in Congress on social security reform, and the negotiations on state debt restructuring. In light of the above, we lowered our forecast for the Selic policy rate at the end of 2017 and 2018 to 9.5% and 8.5%, respectively. Stronger U.S. economic data led the Federal Reserve to resume monetary policy normalization, which may be accelerated if the incoming administration confirms plans to increase government spending. We forecast that the Fed will raise its policy rate three times in 2017, and believe this may generate some noise in asset prices. Overall, however, the strengthening of the U.S. economy will likely support the world economy in 2017, which may also receive a boost from policy easing in some emerging countries. Commodity prices have already evolved favorably for Brazil, improving the country s terms of trade. Higher international prices could help reverse the decline in investments in the commodities sectors. Executive Summary Soybeans - The upward trend in global consumption will keep international prices rising slightly, despite record harvests in the U.S. and Brazil and a very good harvest in Argentina. Domestic prices should remain low, reflecting the beginning of the record Brazilian harvest in March. Corn Despite record harvests in the U.S., Brazil and Argentina, international prices will continue to increase slightly, reflecting the growth in global consumption. Domestic prices should remain low, as a record Brazilian harvest is expected for March. Coffee International price fundamentals remain bullish due to a tighter supply, and a possible world coffee production deficit for this year. The Brazilian harvest that will start in April is expected to bring the biannual Arabica production downwards, which should continue pushing the domestic price upwards. Cattle High unemployment rates will continue to hold back the domestic consumption of beef; combined with a growing supply of animals for slaughter, which should limit the increase in beef prices. Exports are likely to grow, thus restricting any downward pressure on prices. Sugar and Ethanol Low international inventories and a global sugar production deficit contribute to high sugar prices in international markets. Ethanol prices will remain high due to low inventories in the off-season.
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 The upward trend in global consumption will keep international prices rising slightly, despite record harvests in the U.S. and Brazil and a very good harvest in Argentina. Domestic prices should remain low, reflecting the beginning of the record Brazilian harvest in March Fundamentals The USDA released the 9th report for the 2016/17 grain crop, which has already been harvested in the U.S., and is being planted in Brazil and Argentina. For the U.S., the USDA lowered production estimates from 118.7 to 117.2 million tons, reflecting a slight decline in productivity compared to last month. However, this result still represents a record high of 9.7% compared to the last harvest. The USDA maintained its grain production forecast for Argentina at 57 million, and increased its estimate for Brazil from 102 million to 104 million tons, the same level expected by Conab. The global stock-to-consumption ratio is estimated at 24.9%, a level close to last harvest, when it was 24.5%. World consumption estimates have been revised upwards for the past 3 months, and should grow 4.7% compared with the previous harvest. Conab disclosed the 4th estimate for the 2016/17 harvest, which has already been planted and is currently in its development stages in Brazil. With favorable weather conditions expected during development, 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 8.7%, totaling 103.8 million tons, compared to 95.4 million in the last harvest. Compared to last month s report, Conab adjusted yield estimates upwards to 102.5 to 103.8 million tons, which reflects the improved yield estimates. Due to increased consumption, international prices have been rising slightly despite record harvests in the Fonte e Projeção: CONAB U.S. and Brazil and a very good Produção harvest Nacional de in Soja Argentina. 1990-2012 Domestic prices should remain low, reflecting the Elaboração: Bradesco beginning of the record Brazilian harvest in March. em mil toneladas 107.000 98.000 89.000 80.000 71.000 68.688 75.324 86.121 81.499 66.383 95.435 103.778 National production of soybeans in 000 tons 62.000 53.000 44.000 52.018 49.989 41.917 55.027 60.018 57.162 35.000 26.000 17.000 31.370 32.345 25.934 26.160 15.394 8.000 Source and Estimate: Conab 2
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 dez/16 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* 3.300 3.100 2.900 2.700 2.751 2.567 2.816 2.816 2.629 2.927 3.115 2.998 2.938 2.854 2.651 3.072 Soybean productivity in kg per hectare 2.500 2.300 2.100 2.027 2.150 2.367 2.395 2.299 2.221 2.175 2.419 2.339 2.245 1.900 1.700 1.580 1.500 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 68,60 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 2000-2010 em US$ cents por bushel 19,98 22,57 1.800,0 1.600,0 1.400,0 1.515 1.674 1.525 1.486 International soybean prices (US$ cents/bushel) 1.200,0 1.000,0 800,0 600,0 546 491 400,0 507 436 989 689 632 567 526 542 757 908 1.211 1.143 1.287 1.178 965 1.146 871 1.021 Source: Bloomberg 3
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 Despite record harvests in the U.S., Brazil and Argentina, international prices will continue to increase slightly, reflecting the growth in global consumption. Domestic prices should remain low, as a record Brazilian harvest is expected for March Fundamentals The USDA disclosed the 9th report for the 2016/17 harvest. U.S. corn production estimates were revised down from 386.8 to 384.8 million tons, which reflects a decline in expected yields. However, this result still represents a record high, after an 11.4% growth from the last harvest. For Argentina, the previous month s yield estimate of 36.5 million tons was maintained, which is also a record. In the case of Brazil, which is expected to have the 2nd highest crop ever recorded, the USDA has revised the estimated corn yield upward, from 83.5 to 86.5 million tons, above Conab s estimates of 84.0 million tons. The global stock-toconsumption ratio was estimated at 21.5%, very similar to last harvest s ratio of 21.9%. In addition, world consumption estimates have been revised upwards on a monthly basis, and should grow 7.2% compared with the previous harvest. Conab disclosed the 4th estimate for the 2016/17 Brazilian harvest, which has already been planted and is currently in its development stages. Since forecasts call for favorable weather conditions during crop development, is expected to return to the levels seen before the 2016 crop failure. Therefore, total corn yield is expected to reach 84.5 million tons, which amounts to a 26.7% growth when compared with the previous harvest. The first harvest, which did not see a decline in yield in 2016, is expected to reach 28.4 million tons, a 9.9% increase. As for the second harvest, which had a sharp drop in yield in 2016 due to drought conditions, is expected to recover its productive potential and reach a record level of 56.1 million tons, which amounts to a 37.3% growth from the previous year. Compared to last month s report, Conab adjusted the first harvest estimates upwards, from 27.7 to 28.4 million tons, which is due mostly to the improved yield estimates. The estimates were maintained for the second harvest, which will enter a more intense planting stage in February. Despite high global inventories and record harvests in the U.S., Brazil and Argentina, international prices have been rising slightly, reflecting the growth in global consumption. On the other hand, domestic prices em mil toneladas Fonte e Projeção: Conab should remain low, reflecting Produção the beginning Nacional de Milho of - 1991 the -record 2012 Brazilian harvest in March. 90.000 80.000 70.000 84.673 84.480 81.506 80.052 72.980 66.694 Domestic corn production in 000 tons 60.000 50.000 47.411 51.370 58.652 56.018 57.407 51.004 40.000 37.442 35.716 30.771 33.174 32.393 30.000 24.096 20.000 42.290 35.281 42.129 35.007 42.515 Source and estimates: Conab 4
em kg por ha Produtividade - Milho - 1991-2012 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 09/10 jan/05 jan/14 10/11 jan/06 11/12 jan/15 12/13 jan/07 jan/16 13/14 jan/08 14/15 jan/17 15/16 jan/09 dez/17 16/17* jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16 dez/16 6.000 5.500 5.000 4.808 5.149 5.057 5.396 5.249 Corn productivity in kg per hectare 4.500 4.000 3.500 3.260 3.585 3.296 4.311 4.158 3.972 3.655 3.599 3.279 4.189 3.000 2.500 2.622 2.588 2.650 2.589 2.480 2.194 2.3492.344 2.356 2.864 2.867 2.000 1.791 1.500 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 29,35 Source: Deral 7,05 Production and Estimate: 5,0 BRADESCO Milho - Bolsa de Chicago - CBOT Em US$ cents por bushel 20,0 15,0 11,95 10,0 Preço futuro 1º vencimento 11,40 18,96 16,26 10,44 14,14 Fonte: Bloomberg Elaboração e Projeção: Bradesco 13,07 17,26 19,17 860 760 660 711 753 763 662 International Corn prices (US$ cents/bushel) 560 546 603 493 502 460 360 260 235 217 160 267 215 316 237 413 326 418 322 347 439 335 410 323 386 Source: Bloomberg 5
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 price fundamentals remain bullish due to tighter supply and a possible world coffee production deficit for this year. The Brazilian harvest that will start in April is expected to bring the biannual Arabica production downwards, which should continue pushing the domestic price upwards Fundamentals In December, the USDA released the half-yearly report for the 2016/17 harvest. This crop has already been harvested in Brazil, and is currently being harvested in the remaining producing countries. The report revised global consumption upwards, from 150.8 million bags in the June report to 153.3 million in December. Global production was also revised upwards over the same comparison period, from 155.7 to 156.6 million bags. The stock-to-consumption ratio was estimated at 21.7%, against 20.9% in the previous report. However, it s still below last harvest, when it came in at 22.9%. For Brazil, the USDA revised the yield estimates from 55.9 to 56.1 million bags, reflecting an improvement in the Arabica coffee estimates, from 43.8 to 45.6 million bags, while Robusta fell from 26.2 to 25.6 million bags, due to drought conditions in Espírito Santo. Colombia s yield forecasts went from 13.3 to 14.5 million bags. The country has been recovering its production annually since 2012. For Vietnam, the estimate was revised down from 27.3 to 26.7 million, also due to last year s drought. The next USDA report will be released in June. Conab released its 4th report for the 2016/17 coffee harvest in late December. For Arabica, yield estimates were revised from 41.3 to 43.4 million bags between September and December, reflecting the improvement expected for São Paulo and Minas Gerais. In contrast, the yield forecast for Robusta declined from 8.4 to 7.9 million bags, as it accounted for the effects of the drought on Espírito Santo s yield. With the improved results for Arabica, total yield was estimated at 51.4 million bags, up 3.5% from an estimated 49.6 million bags announced in September. In August, Conab released the 1st report for the 2017/18 crop, which will begin being harvested in April. Considering the average intervals, total expected coffee production is 45.6 million bags, down 11.3% from the previous harvest, due to the low biannual Arabica yield, which estimated at 36.5 million bags, or 16.0% lower than the previous harvest. The estimated yield for Robusta is 9.1 million bags (a 14.3% increase), based on improved weather forecasts for the producing regions in Rondônia, Bahia and Espírito Santo, and the ensuing recovery. International Produção price Nacional fundamentals de Café - 1994-2012 remain Fonte bullish, e projeção (*): reflecting Conab Elaboração: Bradesco a tighter supply and a possible new world coffee production deficit for this year. The Brazilian harvest that will begin to be harvested in April should bring the biannual Arabica cycle downwards and leading to price increases in the domestic market. mil sacas de 60 kg 61.000 51.000 41.000 31.000 26.000 27.500 34.547 27.170 31.100 28.137 48.480 28.820 39.272 32.944 42.512 36.070 45.992 39.470 48.095 43.484 50.826 49.152 51.369 45.342 43.235 45.580 Domestic coffee production in 000 60 kg bags 21.000 16.800 18.860 11.000 Source and estimate: Conab 6
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 Em R$ por saca 60 kg Café Arábica - Preço ao Produtor - Praça São Paulo 2000 Fonte: - 2012Cepea Esalq Elaboração e Projeção: Bradesco Arabica coffee São Paulo in US$ per 60 kg bag 750,0 650,0 550,0 530,8 556,7 665,3 480,1 450,0 350,0 250,0223,6 239,8 337,0 230,4 291,4 269,8 247,5 328,0 491,1 408,6 424,0 366,3 247,7 Projeção de preço: média dos preços futuros Em US$ cents por libra peso Source: BMF BOVESPA 150,0 Café em grão - Bolsa de Nova York - NYBOT 2000-2010 50,0 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 96,55 142,45 108,67 150,03 117,62 118,14 160,47 138,62 156,25 International Coffee Prices in US$ cents/ Lb 25,0 Source: Bloomberg 7
BEEF Cattle High unemployment rates will continue to hold back the domestic consumption of beef; combined with a growing supply of animals for slaughter, which should limit the increase in beef prices. Exports are likely to rise, thus restricting any downward pressure on prices Fundamentals In mid-october, the USDA disclosed its biannual global meat production monitoring report. The report presented positive estimates for 2017, with a 2.0% growth in Brazilian beef production, a 5.4% rise exports and 1.1% in the domestic consumption. For 2016, the USDA had projected an 8.5% growth in Brazilian shipments. However, exports closed the year down 0.9%. In fact, shipments did see increased dynamism in the first half of last year, as several markets reopened for Brazilian beef, and the exchange rate was at one of its most depreciated level in several years. Beef exports lost steam in the second half, and closed the year slightly down, by 0.9%. In the year, the main growth drivers were countries that opened up their markets to Brazilian beef: 8.0% growth in exports to the U.S., 14.3% for the Middle East and 69.0% for China, which began importing Brazilian beef in the second half of last year). In the cases of Venezuela and Russia, countries that are very dependent on oil revenues, shipments were down 76.0% and 22.5%, respectively. Choice beef prices at São Paulo wholesale markets lost an average of 4.0% last year, due to the sharp drop in consumption caused by a deteriorating labor market. On the other hand, the prices for poultry the main substitute for beef rose by 8.6%. Weak domestic consumption has been the main limiting factor for beef prices. The supply of ready-for-slaughter animals was tight during the last year. Until August, slaughter volumes fell 1.6% against the same period last year, after an 8.0% drop in 2015. The high costs of corn-based and soybean-based feed have limited the expansion of confinement facilities, not significantly contributing to increase the supply. As of this year, the supply of animals from the feedlots could see an increase, stimulated by the record grain harvest and a consequent drop in corn and soybean prices starting with the March harvest. In addition, the retention of females has been falling, which suggests an increase in the supply of calves. Domestic consumption tends to remain limited in the coming months, due to high unemployment rates and tightening of household budgets. On the other hand, exports should record some growth with the consolidation of recently opened markets. Finally, the supply of animals ready for slaughter may be normalized this year, due to a rainier climate and an increase in the supply of calves. The combination of a possibly increased supply of animals and weak domestic consumption will limit price hikes resulting from a growth in exports. Exportações Brasileiras de carne bovina - 2010-2012 - Em toneladas Fonte: Secex Elaboração: Bradesco 140.000 135.000 130.000 2015 2016 129.482 Brazilian beef exports (in tons) 125.000 120.000 115.000 115.666 110.000 108.423 108.879 105.000 104.800 103.314 100.000 95.00097.221 95.497 90.000 jan fev mar abr mai jun jul ago set out nov dez Source: SECEX 8
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 - 2010-2012 - Em toneladas Fonte: Secex Elaboração: Bradesco Slaughter Cattle in thousand heads 2.600 2.485 2014 2015 2016 2.400 2.253 2.256 2.200 2.000 2.000 2.070 2.058 Source : MAPA Production : BRADESCO Em R$ por arroba (15 kg) 1.800 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 97,0 150,7 157,7 148,1 146,41 145,1 Live cattle producer price São Paulo in R$ per arroba 40,0 20,0 Source: Cepea
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* SUGAR AND ETHANOL Sugar and Ethanol Low international inventories and a global sugar production deficit contribute to high sugar prices in international markets. Ethanol prices will remain high due to low inventories in the offseason Fundamentals In November, USDA released its half-yearly report on the 2016/17 sugar harvest. Production estimates increased from 169.3 in May to 170.9 million tons in the current report, reflecting the more positive estimates for Brazil and China. For Brazil, yield estimates went from 37.1 to 37.8 million tons, while China saw a more significant increase, from 8.2 to 9.5 million tons. USDA kept the estimated consumption level at 173.6 million tons. Therefore, the global deficit between production and consumption, previously estimated at 4.3 million tons, has been reduced to 2.6 million tons. In the previous harvest, this deficit reached 6.7 million tons. The stock-to-consumption ratio dropped by 17.7%, compared to the 19.0% in the previous estimate, and below the 22.0% recorded in the last harvest. According to Unica, the volume of sugarcane processed in the Center-South until mid-december recorded a 1.9% increase compared to the same period last year, while sugar processing rose 16.7%. There was an increase of 2.2% in the production of anhydrous ethanol (which is mixed with gasoline), while the production of hydrated ethanol (used as fuel) dropped 11.9%. The more targeted processing for anhydrous is due to the greater domestic demand for gasoline. In December, Conab released the 3rd report for the 2016/17 harvest. Sugarcane production, which had been estimated at 684.8 million tons in August, was revised to 694.5 million tons, an increase of nearly 10 million tons. This revision reflected a 1.5% increase of the estimate for the planted area between the two reports, since yield remained unchanged. Compared to the previous crop, the production increased by 4.4%, as a result of improved weather conditions and the expanded area. Sugar production is estimated at a record level of 39.8 million tons, an 18.9% increase from the last harvest. Ethanol production has also not undergone any relevant revision and is estimated at 27.9 million liters, an 8.5% drop from the previous harvest. Conab s next report will be released in April, disclosing the final figures for the 2016/17 crop, and providing the first estimates for the 2017/18 crop just as harvesting begins. Along with favorable weather, with regular rainfall, a price stimulus could help boost production. However, the below-average renewal of the sugarcane field can limit this increase. International prices continued to drop in the last few months of the year, reflecting the settlement of investment fund agreements and the appreciation of the dollar. Recently, prices went back to being guided by the fundamentals. Although smaller than initially expected, a global production shortfall and the low level of global stocks Fonte e projeção : Conab mil toneladas Elaboração. continue Bradesco to keep international Produção Nacional sugar de prices Cana-de-Açúcar at high levels. - 1990 -Ethanol 2013 prices in the domestic markets should remain high during off-season months, when inventories are significant lower. 650.000 550.000 450.000 431.413 474.800 559.432 604.514 623.905 694.545 658.822 665.586 634.767 588.916 560.364 Sugar cane production in 000 tons 350.000 250.000 222.429 223.460 240.944 314.969 287.810 257.592 320.650 359.316 150.000 Source and estimate: Conab 10
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-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 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* Domestic sugar and ethanol production Sugar in 000 tons Ethanol in 000 liters 43.000 36.000 29.000 22.000 SUGAR ETHANOL 27.500 37.878 35.968 27.595 25.763 23.640 39.815 33.489 30.462 27.864 15.00012.692 16.020 23.007 Source and estimate: Conab 11.700 8.000 13.078 10.518 14.640 em R$ por metro cúbico 2.020 1.920 1.820 1.720 1.842 1.840 1.950 Hydrous Ethanol Prices in R$ per cubic meters 1.620 1.650 1.520 1.420 1.320 1.291 1.354 1.316 1.220 1.285 1.120 1.148 1.020 1.076 1.025 920 Em US$ cents por libra peso Source: BMF BOVESPA Preços internacionais de açúcar NYBOT Preço futuro 1º Vencto 2000 2013 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 19,6 15,0 13,1 14,6 15,4 14,9 9,0 5,6 10,7 9,0 8,8 6,3 9,0 8,4 8,9 11,3 10,7 Source: Bloomberg 3,0 11
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 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 16-jun- 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 Harvest follow-up Posições Não Comerciais e Preços Internacionais de café - 2007-2014 - Fonte: Bloomberg Elaboração: Bradesco Non-commercial positions and international coffee prices 240 220 200 Coffee price Non-commercial positions 80 60 40 180 20 160 0 140 134,35 120-20 Source: Bloomberg 100-40 1.500 1.400 1.300 Soybean price Non-commercial position 280 240 200 160 120 Non-commercial positions and international soybean prices 2011-2016 1.200 80 1.100 1.000 40 0 985,5-40 900-80 -120 800-160 Source: Bloomberg Non-commercial positions and international corn prices 2011-2016 550 500 Corn price Non-commercial position 300 200 100 450 0 400-100 369,75 350-200 Source: Bloomberg 300-300 12
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
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
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
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
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
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 Global economics: Fabiana D Atri / Felipe Wajskop França / Thomas Henrique Schreurs Pires / Ellen Regina Steter Brazil: Igor Velecico / Estevão Augusto Oller Scripilliti/ Andréa Bastos Damico / Myriã Tatiany Neves Bast / Daniela Cunha de Lima / Ariana Stephanie Zerbinatti Brazilian sectors: Regina Helena Couto Silva / Priscila Pacheco Trigo Proprietary survey: Leandro Câmara Negrão/ Ana Maria Bonomi Barufi Internships: Gabriel Marcondes dos Santos / Wesley Paixão Bachiega / Carlos Henrique Gomes de Brito