MONTHLY AGRIBUSINESS BRAZIL MONTHLY AGRIBUSINESS BRAZIL February 2016 Macroeconomic Outlook Household and business confidence are beginning to show some signs of stabilization, although they are still extremely low, reflecting concerns over the sustainability of the public accounts and the political uncertainties. There has been no interruption in Brazil s economic slowdown, which is sustaining the worsening of the job market. Frustration with tax collection and the need to raise revenue and reduce spending have increased the challenges facing the fiscal adjustment. At the same time, the signals coming from the economy remain disappointing and we expect GDP to shrink by 3.5% in 2016, following last year s reduction of 3.9%, remembering that the IBGE will publish these figures on March 3. The weakening of domestic activity and the difficulty in adjusting the public accounts, as well as the dollar s global scale upward tendency and the slide in commodity prices, should ensure continuing pressure on the exchange rate, which is out of step with the economic fundamentals and which we believe will close the year at US$/R$4.00. Given the poor performance of the economy, we expect the IPCA consumer price index to move up by 6.9% this year. As a result of this decompression over last year (10.67%), as well as the uncertain global outlook and the Brazilian recession, we expect the Selic benchmark interest rate to close the year at 13.25%. The increase in global market volatility at the beginning of the year is still ongoing, reflecting the uncertainties over China s performance and the possible impacts on the commodity production chains and the global economy, especially the emerging nations. As a result, given their concerns with the risks associated with the international scenario, central banks around the world are signaling the possibility of expanding the monetary stimuli if there is any threat to the economic recovery of their countries. This is also the case with the Federal Reserve, which may suspend the continuation of the monetary normalization process begun at the end of last year (or make it even more gradual). Executive Summary Soybeans International prices should remain low in response to high global stocks. The development of La Niña in the coming months may lead to some price volatility during the planting season in the U.S., between May and June, and in Brazil, between September and October. Domestic prices will remain high, benefiting from the weak real. Corn International prices should continue at their moderately high level, reflecting reduced production in the USA and Brazil, although a bigger upturn will be limited by the elevated stocks to use ratio. Domestic prices remain high, favored by the devaluation of the real, but should give way in the coming months with the entry of the 1st crop. This tendency should become more intense in the second half with the entry of the 2nd harvest, which is expected to reach record levels. Coffee International prices should remain stable at low levels, given the favorable Brazilian harvest estimate. Prices in reais should remain high, benefiting from the weak real. However, prices are likely to show substantial volatility in line with news on the development of the Brazilian crop and the possible negative effects of El Niño on the Asian harvests. Cattle Domestic meat demand will continue to flounder in response to the need to adjust household budgets. Supply of animals ready for slaughter will remain limited by high feed costs during confinement. Although domestic demand will continue to ensure low cattle prices, future BMF prices should continue to be sustained by expectations of export growth. Sugar and Ethanol Sugar prices should continue to move up moderately in response to the improved adjustment between global supply and demand. Ethanol prices should remain high, benefiting from robust demand to the detriment of gasoline. However, with the entry of the new harvest in March, prices should begin to fall, reflecting the expected upturn in production this year.
Soybean International prices should remain low in response to high global stocks. The development of La Niña in the coming months may lead to some price volatility during the planting season in the U.S., between May and June, and in Brazil, between September and October. Domestic prices will remain high, benefiting from the weak real SOYBEANS Fundamentals In this month s report, the USDA maintained its U.S. production estimate for the 2015/16 harvest, which has now been concluded, at 107.0 million tonnes. It also maintained its forecast for Brazil at 100 million tonnes, but increased its estimate for Argentina from 57 to 58.5 million tonnes. As a result, the stocks to use ratio was raised from 25.2% to 25.6%. Conab s 5th 2015/16 harvest survey revised estimated soybean production down for the second consecutive month. Output is now estimated at 100.9 million tonnes, versus last month s forecast of 102.1 million tonnes, primarily due to expectations of lower yields in Mato Grosso, which suffered from very low rainfall during the most important period of plant development. Nevertheless, soybean is the current season s best performer, being the only crop to record an increase in planted area in response to healthy profitability as a result of the appreciation of the dollar. This will therefore be the fourth consecutive year of record soybean output, with growth of 6.1% over the previous harvest. The meteorological services are pointing to the growing likelihood of the formation of La Niña as of July/August, which is the period of crop development in the USA, possibly intensifying as of September/October, the planting period in Brazil. The effects of La Niña are the opposite to those of El Niño, which has affected the current harvest. Drier weather is therefore expected in the South of the country, with more rainfall in the Northeast, as well as dry weather in the United States, leading to a possible reduction in yields in both the U.S. and the South of Brazil. International prices should remain at their current low levels, reflecting high global stocks and the record harvest in Brazil. Attention will be highly concentrated on the development of La Niña in the coming months, which may lead to some price volatility during the planting season in the U.S., between May and June, and in Brazil, between September and October. On the other hand, domestic prices will remain high, benefiting from the weak real. 107.000 98.000 89.000 80.000 71.000 62.000 53.000 52.018 49.989 55.027 68.688 60.018 57.162 75.324 66.383 86.121 81.499 100.933 96.228 National production of soybeans 1991 2016 in 000 tons 44.000 41.917 35.000 26.000 17.000 19.419 15.394 31.370 32.345 25.934 26.160 8.000 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* Source and Estimate: Conab 2
3.300 3.100 2.900 2.700 2.751 2.567 2.816 2.816 2.629 2.927 3.115 2.651 2.998 3.037 2.938 2.854 Soybean productivity 1991 2016 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 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* Source and estimate: Conab Soybean producer price Paraná 2000 2016 in R$ per 60 kg bag 80,0 70,0 60,0 73,92 61,83 70,82 66,10 50,0 43,93 48,15 44,37 45,68 50,53 53,38 40,0 39,81 40,14 30,0 26,63 32,42 28,62 27,03 30,59 Source: Deral Production and Estimate: BRADESCO 20,0 18,04 10,0 jan/00 jan/01 19,98 jan/02 jan/03 jan/04 jan/05 22,57 jan/06 jan/07 jan/08 jan/09 jan/10 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16 dez/16 1.800,0 1.600,0 1.400,0 1.200,0 1.000,0 800,0 600,0 546 491 400,0 jan/00 507 436 jan/01 jan/02 989 689 632 567 526 jan/03 jan/04 jan/05 757 542 jan/06 jan/07 1.515 1.211 908 jan/08 jan/09 jan/10 1.674 1.525 1.486 1.287 1.178 1.143 965 jan/11 jan/12 jan/13 jan/14 jan/15 jan/16 dez/16 883 International soybean prices (US$ cents/bushel) 2000 2016 Source: Bloomberg 3
Corn International prices should continue at their moderately high level, reflecting reduced production in the USA and Brazil, although a bigger upturn will be limited by the elevated stocks to use ratio. Domestic prices remain high, favored by the devaluation of the real, but should give way in the coming months with the entry of the 1st crop. This tendency should become more intense in the second half with the entry of the 2nd harvest, which is expected to reach record levels CORN Fundamentals This month s USDA harvest report maintained its estimate of U.S. production, which has already been concluded, at 345.5 million tonnes, but increased its estimates for Argentina, from 25.6 to 27 million tonnes, and Brazil, from 81.5 to 84 million tonnes. In comparison with the previous month, the stocks to use ratio remained flat at 21.6%, still above the last harvest s figure, which closed at 19.8%. Conab s 5th 2015/16 harvest survey, published this month, raised its production estimate for the 1st corn crop, whose harvesting will begin in March, from the previous month s 27.7 million tonnes to 28.3 million tonnes. Output from the 2nd crop, whose planting begins as of February, is estimated at 55 million tonnes, giving total production of 83.3 million tonnes, 2.8% down on the previous season. One important aspect that deserves attention in the coming months is the growing likelihood of the formation of the La Niña weather phenomenon as of July/August, the plant development period in the United States, possibly intensifying as of September/October, the planting period in Brazil. The effects of La Niña are the opposite to those of El Niño, which has affected the current harvest. Drier weather is therefore expected in the South of the country, with more rainfall in the Northeast, as well as dry weather in the United States, leading to a possible reduction in yields in both the U.S. and South of Brazil. International corn prices should continue at their moderately high level, reflecting reduced production in the USA and Brazil, although a bigger upturn will be limited by the elevated stocks to use ratio. There may be some volatility during the planting periods in the USA, between April and May, and Brazil, between September and November. Domestic prices are still being favored by the devaluation of the real, but are likely to fall back in the coming months with the entry of the new harvest. The downturn may become more accentuated in the second half, with the entry of the 2nd crop, which is expected to reach record levels. 90.000 80.000 70.000 84.673 83.336 81.506 80.052 72.980 Domestic corn production 1991 2016 in 000 tons 60.000 50.000 47.411 58.652 56.018 57.407 51.370 51.004 42.290 42.129 42.515 40.000 30.771 30.000 24.096 37.442 33.174 35.716 32.393 35.281 35.007 20.000 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* Source and estimates: Conab 4
6.000 5.500 5.000 4.500 5.396 5.432 5.149 5.057 4.808 4.311 4.158 Corn productivity in kg per hectare 1991 2016 4.000 3.500 3.260 3.585 3.296 3.972 3.655 3.599 3.279 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 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* Source and estimate: Conab Corn producer price Paraná 2000 2016 in R$ per 60 kg bag 35,0 30,0 25,0 22,28 24,94 26,92 23,29 29,60 24,34 20,0 15,0 11,95 10,0 11,40 18,96 16,26 10,44 14,14 13,07 19,96 17,26 17,84 19,17 Source: Deral Production and Estimate: BRADESCO 5,0 jan/00 jan/01 7,05 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/16 860 760 660 711 750 766 661 International Corn prices (US$ cents/bushel) 2000 2016 560 546 598 493 502 460 360 260 235 217 160 jan/00 jan/01 316 267 215 jan/02 jan/03 jan/04 jan/05 237 jan/06 413 326 jan/07 jan/08 418 322 jan/09 jan/10 347 jan/11 jan/12 jan/13 440 jan/14 337 jan/15 367 jan/16 dez/16 391 Source: Bloomberg 5
Coffee International prices should remain stable at low levels, given the favorable Brazilian harvest estimate. Prices in reais should remain high, benefiting from the weak real. However, prices are likely to show substantial volatility in line with news on the development of the Brazilian crop and the possible negative effects of El Niño on the Asian harvests COFFEE Fundamentals The USDA s mid-december report reduced estimated Brazilian output from the 2015/16 harvest, which has already been concluded in Brazil, from 52.4 million bags, estimated in June, to 49.4 million bags in December, reflecting the impact of the drought in the Southeast region last year. In the case of the global crop, the USDA lowered its estimate from 152.7 million to 150.1 million bags between the same two periods, primarily due to the downward revision for Brazil. These revisions have helped sustain coffee prices in recent months. In the case of Vietnam, which produces robusta coffee and which is currently in the harvesting period, the USDA estimated production expansion from 28.6 to 29.3 million bags between the two surveys. However, Vicofa, the local coffee growers association, estimated output of just 18 million bags, in response to the low prices received for the previous harvest, which discouraged planting. According to the meteorological services, El Niño should lead to lack of rainfall in the equatorial regions, possibly jeopardizing the crops in such coffee-producing countries such as Vietnam, Indonesia and Colombia. It is worth remembering that the 2015/16 crop is currently in the harvesting phase in Vietnam and Colombia, while in Brazil, harvesting has been concluded (harvesting of Brazil s 2016/17 crop will begin in April). The USDA s next six-monthly report will be published in mid-june, when we will have a clearer picture of the harvest estimates for these countries. In January, Conab published its first survey of Brazil s 2016/17 crop, the higher of the two-year coffee cycle, which estimated production of 50.5 million 60 kg bags, 16.9% up on the 43.2 million bags produced in the previous harvest. Arabica output is expected to move up by 21.1% over the 32.1 million bags recorded last year, reaching 38.8 million bags. The upturn is due to favorable weather conditions and the increase in planted area in Minas Gerais and São Paulo. Robusta output is estimated at 11.7 million bags, 4.9% more than the 11.2 million bags produced in the previous harvest, fueled by the increase in planted area in Bahia. In Espírito Santo, the state that produces the most robusta, planted area was reduced, due to the difficulties confronting growers due to weather variations last year. International prices should remain stable at their current low levels, given the favorable Brazilian harvest estimate, but domestic prices in reais should remain high, benefiting from the weak real. However, prices are likely to show substantial volatility in line with news on the development of the Brazilian harvest, which begins in April, and the possible negative effects of El Niño on the Asian harvests. 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 50.535 45.342 43.235 Domestic coffee production 1994 2016 in 000 60 kg bags 21.000 16.800 18.860 11.000 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 6
Arabica coffee São Paulo 2000 2016 in US$ per 60 kg bag 590,0 540,0 490,0 530,8 480,1 523,8 528,0 479,3 440,0 390,0 340,0 290,0 240,0223,6 190,0 239,8 337,0 230,4 291,4 245,8 328,0 269,8 247,5 457,8 408,6 424,0 366,3 247,7 140,0 Source: BMF BOVESPA 90,0 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 dez/16 325,0 275,0 272,07 International Coffee Prices 2000-2016 In US$ cents/ Lb 225,0 175,0 125,0 115,06 75,0 99,48 127,53 204,99 152,04 142,45 131,18 108,67 96,55 197,02 180,03 150,03 117,62 118,14 117,85 25,0 jan/00 jan/01 63,07 65,95 67,78 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 Source: Bloomberg 7
Cattle Domestic meat demand will continue to flounder in response to the need to adjust household budgets. Supply of animals ready for slaughter will remain limited by high feed costs during confinement. Although domestic demand will continue to ensure low cattle prices, future BMF prices should continue to be sustained by expectations of export growth BEEF Fundamentals Although beef export volume began moving up as of the beginning of the second half of last year in response to the depreciation of the real, it still fell by 13.3% in 2015 as a whole, reflecting reduced purchases by Russia (-47.9%) and Venezuela (-40.4%), both of which were suffering from the effects of the reduction in oil prices and the devaluation of their respective currencies against the dollar, which made meat imports more expensive. This year, the depreciation of the real will continue to fuel shipment expansion, as will two other exceptionally important factors: (i) the opening of several markets to Brazilian beef, namely the United States, China, Japan, South Africa, Iraq, Iran and Saudi Arabia; and (ii) the reduction in Australian exports to Asian countries due to the lower number of animals ready for slaughter. The USDA expects Brazilian beef export volume to increase by 9.2% this year, while Abiec (the meat exporters association) estimates an upturn of 21%. The wholesale meat price trajectory is giving indications that consumers are replacing purchases of lower quality beef cuts with chicken. Between mid-2015 and the beginning of February 2016, the price of lower quality cuts fell by 4% on average while chicken prices increased by 15%. Domestic meat consumption, especially of beef, which is more expensive, will tend to fall off, reflecting the worsening of the job market and lower consumer earnings. Despite the improved weather, contributing to good pasture maintenance, the supply of animals ready for slaughter should remain extremely limited this year due to the slaughter of females in previous years. In 2015, restricted supply led to an 8.6% reduction in the number of animals slaughtered and these restrictions are likely to remain this year, due to the high cost of corn-based feed limiting confinement expansion. Domestic beef demand should cool in the coming months, reflecting the continuing deterioration of the job market and the need to adjust household budgets. Despite higher rainfall improving pasture maintenance, supply should remain limited, given that high feed costs will hinder confinement growth. Although the slowing of domestic demand will continue to ensure low cattle prices in the months ahead, future BMF prices should continue to be sustained by expectations of higher exports, favored by the exchange rate and the opening of new markets. 150.000 140.000 130.000 2013 2014 2015 Brazilian beef exports (in tons) 2013 2015 120.000 120.133 110.000 100.000 104.974 90.000 80.000 jan fev mar abr mai jun jul ago set out nov dez Source: SECEX 8
Slaughter Cattle in thousand heads 2013-2015 2.600 2.400 2.485 2013 2014 2015 2.294 2.200 2.208 2.256 2.000 1.962 Source : MAPA Production : BRADESCO 1.800 jan fev mar abr mai jun jul ago set out nov dez 180,0 160,0 140,0 120,0 100,0 80,0 60,0 61,8 93,3 125,2 109,6 106,9 108,4 97,0 90,8 74,5 150,7 155,2 163,4 Live cattle producer price São Paulo 2002 2016 in R$ per arroba 51,7 40,0 42,2 20,0 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 Source: Cepea
Sugar and Ethanol Sugar prices should continue to move up moderately in response to the improved adjustment between global supply and demand. Ethanol prices should remain high, benefiting from robust demand to the detriment of gasoline. However, with the entry of the new harvest in March, prices should begin to fall, reflecting the expected upturn in production this year SUGAR AND ETHANOL Fundamentals In its latest report published in December, Conab estimated sugarcane production from the Brazilian 2015/16 harvest at 658.7 million tonnes, 3.8% up on the previous crop and slightly higher than August s estimate of 655.2 million tonnes due to improved weather conditions. Conab s next survey will be published in mid-april and will contain the first estimate for the 2016/17 harvest. The USDA s November survey indicated an improved adjustment between global supply and demand, with the stocks to use ratio falling from 26%, in the previous harvest, to 22.9%. The USDA s next sixmonthly report will be released in mid-may. Specialist international consulting firms are pointing to a global sugar industry deficit following five consecutive years of surplus. According to Unica, two months before the end of sugarcane processing from the 2015/16 crop, crushed volume in the Center-South was 4.7% higher than in the same period last year, while production of sugar and anhydrous ethanol (mixed with gasoline) were down by 4.3% and 3.1%, respectively. On the other hand, output of hydrous ethanol, used directly in flex-fuel vehicles, was up by 10.7% in order to meet the strong increase in consumption following the gasoline price hike. According to the ANP, in 2015 hydrous ethanol sales grew by 37.5% over the year before, while gasoline sales fell by 7.3% in the same period. International sugar prices should continue to move up moderately in response to the improved adjustment between global supply and demand and reduced production in Brazil. However, global stocks are still high, which, together with the strong dollar, will prevent a bigger upturn in dollar prices. Ethanol prices should remain under pressure, favored by robust demand and the increase in gasoline prices. However, prices should begin to fall back as of March/April, with the entry of the new sugarcane harvest, given expectations of a substantial increase in ethanol production to the detriment of sugar output. 650.000 550.000 450.000 431.413 474.800 559.432 604.514 623.905 658.822 658.702 634.767 588.916 560.364 Sugar cane production 1991-2016 in 000 tons 350.000 314.969 287.810 250.000222.429 223.460 240.944 257.592 320.650 359.316 150.000 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* Source and estimate: Conab 10
Domestic sugar and ethanol production 1993 2016 43.000 36.000 SUGAR ETHANOL 38.168 35.968 37.878 35.560 34.613 Sugar in 000 tons Ethanol in 000 liters 29.000 27.500 25.763 27.595 28.660 29.215 22.000 19.380 23.640 15.00012.692 16.020 23.007 Source and estimate: Conab 11.700 8.000 93/94 94/95 95/96 96/97 13.078 97/98 98/99 10.518 99/00 00/01 01/02 14.640 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* 1.920 1.820 1.720 1.620 1.520 1.420 1.320 1.220 1.120 1.020 920 1.062 1.291 1.025 1.146 1.225 1.354 1.150 1.136 1.076 1.316 1.192 1.590 1.708 1.353 1.148 1.842 1.455 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 fev/16 mar/16 abr/16 mai/16 jun/16 jul/16 ago/16 set/16 out/16 nov/16 1.475 Hydrous Ethanol Prices 2012-2016 in R$ per cubic meters Source: BMF BOVESPA International sugar prices 2000 2016 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 14,9 13,96 9,0 10,7 9,0 8,8 9,0 8,4 8,9 11,3 10,7 Source: Bloomberg 5,6 3,0 jan/00 jan/01 jan/02 jan/03 6,3 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 11
Harvest follow-up US$ c / libra em número de contratos Non-commercial positions and international coffee prices 2009-2015 380 330 280 230 Non-commercial positions Coffee 281,7 46.478 208,9 50.224 38.200 70.000 60.000 50.000 40.000 30.000 180 20.000 130 80 168,3-2147 10.000 124,25 0-10.000 30-20.000 Source: Bloomberg -20 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16-30.000 16-jun-09 2.000 1.800 1.600 1.400 1.200 1.000 800 600-27264 192117-24414 260.845 1.613 46.808 280.000 Non-commercial positions 240.000 Soybean price 200.000 168.209 160.000 120.000 80.000 926 40.000 940,8 0-20775 -40.000 Non-commercial positions and international soybean prices 2009-2015 400-80.000 200 0 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14-130.404 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16-120.000-160.000 16-jun-09 Source: Bloomberg Non-commercial positions and international corn prices 2009-2015 850 750 385.009 746,8 789,5 Non-commercial positions Corn price 500000 400000 300000 650 149.456 200000 550 545,3 100000 450 350 250-66.274 80.111 340,5-113.383 0-15328 351,5-100000 -200000 Source: Bloomberg 150 Feb-10 Oct-10 Jun-11 Feb-12 Oct-12 Jun-13 Feb-14 Oct-14 Jun-15 Feb-16-300000 12
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
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
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
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
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
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