According to Rabobank, the production outlook for many of Brazil‘s most important agricultural crops in 2014 is extremely good, with the possibility of record-breaking levels for some. One downside is that weak international prices for many of the country’s agricultural commodities are expected. And with production and export volumes set to rise again, and a further increase in transport fuel costs implemented at the end of 2013, there is little chance of lower logistics costs during the year. A silver lining could be the weakening of the BRL/USD exchange rate, which would offset some of the impact of lower world prices on margins.
Brazil’s economy is slowing. GDP growth for 2013 is estimated at 2.2 percent, while current expectations are that the country’s economic growth will fall to 2.0 percent, or even lower, in 2014. The domestic market, already carrying increased levels of debt as a result of easier credit access, and dealing with rising 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. One positive would a weakening of the BRL/USD exchange rate, which would offset some of the impact of lower world prices on margins.
Brazil’s soybean producing regions were impacted by a moderate drought during the final two months of 2013, with the Midwest region hit hardest. A severe reduction in yields of up to 15 percent is only expected to hit about 30 percent 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 soybean production area is projected to increase by 2 million hectares (7%) in 2014, as the crop becomes more economically attractive than corn for producers. This growth in areas used for soybean cultivation could continue, driven by the expectation of another year of positive margins for the crop.
Brazil’s corn production in 2013/14 is expected to drop significantly from the previous year, down 11 percent 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/USD exchange rate should at least partially offset the decline in dollar-denominated corn prices, benefiting Brazil’s corn farmers.
Brazilian beef exports are expected to continue to grow in 2014, after the sector broke export records in 2013. This is being 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 percent to 2 percent), 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 is well aware of the export market’s vulnerability to oversupply and has announced modest ambitions for export volume growth in 2014.