March 26, 2014
Positive outlook for Brazil''s agricultural crops in 2014
Rabbobank reports a very positiveoutlook for the production ofBrazil''skeyagricultural crops in 2014, with a possibilityof record-breaking levels.
One downside is that weak international prices for many of the country''s agricultural commodities are expected. With production and export volumes set to rise again, and a further increase in transport fuel costs implemented at the end of 2013, thereremains little hopefor lower logistics costs during the year. A silver lining could be the weakening of the Brazilian real over US dollar (BRL/US$) exchange rate, which would offset some of the impact of lower world prices on margins.
Brazil''s economy is slowing, with gross domestic product (GDP) growth for 2013 estimated at 2.2%, while current expectations are that the country''s economic growth will fall to 2.0%, or even lower, in 2014. The domestic market, alreadybearing risingdebts as a result of easier credit access, and dealing withincreased interest rates and a substantial inflation rate, will likely not be a source of economic growth. While some growth could come from exports, in its recently published ''Brazil Agribusiness Outlook 2014'' report, Rabobank argues that the country''s export competitiveness has been hit by rising costs, predominantly in the services and logistics area.
During November-December of 2013, Brazil''s soy producing regions were impacted by a moderate drought, with the Midwest region hit the hardest. A severe reduction in yields of up to 15% is only expected to hit about 30% of the crop in that region, though, as January brought a significant improvement to the weather. Good yields are expected to offset any possible erosion in margins. The country''s soy production area is projected to increase by two million hectares (7%) in 2014, as the crop becomes more economically attractive than corn for producers. This growth in areas used for soy cultivation could continue, driven by the expectation of another year of positive margins for the crop.
In 2013-14, Brazil''s corn production is expected to drop significantly from the previous year, down 11% to 72 million tonnes. With global supply expected to exceed demand in 2013-14, this is a pragmatic reaction from Brazil''s corn producers. For 2014, expectations of a weakening of the BRL/US$ exchange rateis expected,at least,topartially offset the decline in dollar-denominated corn prices, benefiting Brazil''s corn farmers.
After the sector broke export records in 2013, Brazilian beef exports are expected to continue to grow in 2014, driven by a number of factors, including declining supply from key exporters, such as Australia and the US; robust import demand in regions such as Asia; the potential for greater market access in countries such as Thailand, Myanmar and Cambodia, while negotiations are under way to increase access to the Chinese market, the US and Saudi Arabia; and the likelihood of a weakening exchange rate over the year, which will boost the relative competitiveness of Brazilian exports.
The outlook for global poultry players in 2014 is generally positive, based on expectations that the price of grains will continue to decline and markets for competing meats, especially beef, will be tight. However, the growth of global trade is expected to be modest (1-2%), suggesting that the direction of international prices will be very much dependent on the aggregate growth of exportable supplies from major exporters. In Brazil, the poultry sector, aware of the export market''s vulnerability to oversupply, has announced modest ambitions for export volume growth in 2014.