February 20, 2014

Brazil set for record crop production in 2014

Brazil can expect another year of record production in 2014 for its major agricultural crops, including soy, despite falling international prices for many of Brazil's agricultural commodities in 2013, according to Rabobank.

According to a recent research note, international prices for many of Brazil's agricultural commodities fell in 2013 and could decline further in 2014. 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".

An increase in export volumes of soy is expected in 2014. Brazil's soy area in 2014 is estimated to be 7%, or two million hectares, up on area in 2013, as a result of favourable economics for soy 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 in 2014 is also expecting to be another year of rising exports. With major competing exporters facing challenges in raising output, Brazil is well-placed to capitalise 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 BRL/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 8% at the end of November 2013, Given the long distances between major crop production regions and the country's ports, sustained major investments in infrastructure over the coming years remain 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.