Rabobank Report: High Crop Production to Again Challenge Brazil’s Infrastructure

Weaker Exchange Rate to Help Offset Lower Commodity Prices

NEW YORK--()--Rabobank has published a new report on the outlook for Brazil’s agribusiness industry for 2014.

In the report, the bank’s Food & Agribusiness Research team says it expects another year of record production for several of Brazil’s major agricultural crops in 2014, including soybeans and, depending on weather developments, sugarcane. However, according to a recent research note, international prices for many of Brazil’s agricultural commodities fell in 2013, and could decline further in 2014. Rabobank says that infrastructure and logistics remains a key point of concern for the country for 2014, particularly for the export market. With production and export volumes set to rise again, and further increases in transport fuel costs implemented at the end of 2013, there is little chance of lower logistics costs in 2014.

“Due to slowing economic growth and high inflation in Brazil, the domestic market will have limited scope to drive growth in sales in 2014,” explained Rabobank analyst Andy Duff. “It is possible that some growth may come from exports, but with declining global commodity prices, revenue growth would have to come from an increase in export volumes, or a declining exchange rate, or both.”

In the case of soybeans, the outlook is an increase in export volumes in 2014. Brazil’s soybean area in 2014 is estimated to be 7 percent, or 2 million hectares, up on area in 2013, as a result of favorable economics for soybeans vis-à-vis corn. If trend line yields are achieved, a harvest of 91 million tonnes is expected for the 2013/14 crop year, versus 81 million tonnes in 2012/13.

Brazil’s beef industry is also expecting 2014 to be another year of rising exports. With major competing exporters facing challenges in raising output, Brazil is well placed to capitalize on growing import demand. The decline in the value of Brazil’s currency over the last year has also boosted the industry’s export competitiveness, and a further gradual decline in the Brazilian real (BRL) / U.S. dollar (USD) exchange rate over 2014 is expected to sustain this competitive advantage.

Nevertheless, the positive impact of the weakening of the BRL/USD exchange rate on Brazil’s export competitiveness has been at least partially offset by rising costs, especially in services and logistics. For example, diesel prices have risen three times since the beginning of 2013, with the most recent hike of eight percent at the end of November 2013. Given the long distances between major crop production regions and the country’s ports, sustained major investment in infrastructure over the coming years remains pivotal if the country is to continue to expand production and export volumes while remaining competitive. However, this will not happen overnight.

“Although Brazil is slowly addressing its bottlenecks, this will take years,” continues Duff. “For 2014, with higher fuel costs and another large grain harvest, logistics costs for Brazilian agribusiness are unlikely to decline.”

Rabobank’s report on the outlook for Brazil’s agribusiness sector is available to media upon request.

Rabobank Group is a global financial services leader providing wholesale and retail banking, leasing, real estate services, and renewable energy project financing. Founded over a century ago, Rabobank is one of the largest banks in the world, with nearly $1 trillion in assets and operations in more than 40 countries. In North America, Rabobank is a premier bank to the food, beverage and agribusiness industry. Rabobank’s Food & Agribusiness Research and Advisory team is comprised of more than 80 analysts around the world who provide expert analysis, insight and counsel to Rabobank clients about trends, issues and developments in all sectors of agriculture. www.rabobank.com/f&a

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Contacts

Media:
Rabobank
Andy Duff, +55 11 5503 7235 (Brazil)
andy.duff@rabobank.com

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Contacts

Media:
Rabobank
Andy Duff, +55 11 5503 7235 (Brazil)
andy.duff@rabobank.com