Focus on Brazil
August 5, 2015
Brazil is a massive and important producer and exporter of grain and oilseeds. Its flour milling industry, concentrated in the south, depends on imported raw material. Logistical problems remain an issue for the grain industry, adding cost to exports.
The International Grains Council (IGC) puts Brazil’s total grain production in 2015-16 at 87.3 million tonnes, down from 89.1 million the year before. Wheat production in 2015-16 is put at 6.3 million tonnes, compared with 6 million in the previous year.
The country’s biggest grain crop is maize, with output of 78 million tonnes predicted for 2015-16, compared with 80 million in 2014-15, the IGC said. Brazil is set to produce an unchanged 2.3 million tonnes of sorghum in 2015-16.
The IGC predicts Brazil’s grain imports will remain steady at 7.7 million tonnes in 2015-16, with its total grain exports at 24.4 million tonnes, up from 22.6 million in 2014-15. Imports are mostly wheat at 6.8 million tonnes in 2015-16 and 6.5 million in 2014-15. Brazil’s maize imports are put at 600,000 tonnes in 2015-16, down from 800,000 the year before. Brazil is set to export 22.3 million tonnes of maize in 2015-16, compared with 20.8 million in 2014-15.
Brazil is second only to the United States in terms of soybean production. The IGC predicts its crop for 2015-16 to be 98 million tonnes, up from 96 million the year before. Its soybean exports will be 49.5 million tonnes, up from 45.8 million in 2014-15.
Flour Milling Industry
According to the industry group, Abitrigo, Brazil has 201 mills. They are concentrated in the south with 57 in Rio Grande do Sul, 67 in Parana and 24 in Santa Catarina. The south accounted for 45% of wheat milling with 2.63 million tonnes milled in Parana, 585,000 tonnes in Santa Catarina and 1.825 million in Rio Grande do Sul.
Ahead of the October 2014 election, Lawrence Pih, president of Moinho Pacifico, Brazil’s largest flour mill, was quoted by the Wall Street Journal as saying that he had been cutting back on investment in expectation of weak demand. After years of supporting President Dilma Rousseff’s Workers’ Party, Pih said he planned to vote for Marina Silva, because he liked her economic team and thought she might inspire the business sector. “The problem is the future,” he said. “There is lack of confidence.” Even so, Rousseff won narrowly.
Brazil imports about half the wheat it consumes, and Argentina is the big supplier. Pih was quoted by Reuters in June expressing the hope that Argentina’s government would release more of its 3-million-tonne exportable surplus of wheat.
Argentina has moved to regain the leading position as Brazil’s supplier, lost to the United States in 2014 because of export restrictions put in place by the Argentine government.
According to Reuters, in the first five months of 2015, Argentina provided 82% of the wheat imported by Brazil, compared with 8% from the U.S.
In 2014, according to the news agency, U.S. wheat accounted for 46% of Brazil’s imports, with 27% coming from Argentina. It explained that a stronger U.S. dollar has favored wheat from Argentina, which is also helped by a shorter freight distance and the tax on imports from outside Mercosur.
The attaché explained in an annual report on the grains sector published in April that Brazil’s wheat import needs are not just about volume.
“Brazil will need to import, even though production is forecast higher, as it needs high quality imports to blend with domestic wheat,” the report said. “At this point, economic uncertainty in Argentina continues to make U.S. wheat imports more viable. However, Argentine elections and a new government could make substantial economic policy changes that could provide more certainty to Brazilian importers.”
The attaché gave reasons for a static maize area.
“High land prices in the largest producing states of Mato Grosso and Parana have made it difficult for producers to expand area in the near term,” the report said. “Tighter credit due to the economic slowdown in Brazil will also be an issue for producers in 2015-16 and another reason area is unlikely to expand. That said, inexpensive land in the Northern states of Amapa, Para and Roraima may incentivize expansion in the north of Brazil over the next few years. As agricultural infrastructure is improved in the region, it will become more profitable to produce in the north as the proximity to new ports and roads will decrease transport costs.”
At the time the report was written, the value of the U.S. dollar had risen by more than 30% in a year.
“While this makes exports more profitable now, it also increases the cost of production for 2015-16,” the attaché explained. “Producers will likely seek to reduce their inputs costs, as most of the inputs are imported. Farmers may lessen the amounts of fertilizers and pest control products or switch to second- or third-tier biotechnology.”
The attaché also highlighted rising transport costs. “Paradoxically, while global oil prices are at their lowest in years, Brazilian fuel prices are going up due to government intervention and a stricter fiscal policy aimed at increasing government revenue,” the report said.
The attaché has 2015-16 corn consumption at 57 million tonnes, a 1% rise explained mainly by growth in the pork and poultry sectors.
“The Brazilian Feed Industry (Sindirações) forecast corn for feed at 39.7 million tonnes, representing about 60% of total feed, which is mainly used for pork and poultry,” the report said. “This number does not include silage. The majority of beef and dairy cattle are grass-fed, but about 5% of beef cattle use corn feed lots. These feed lots are only in use during the dry season (May-September) due to the dry conditions of pastureland in certain areas. This number is not expected to change due to the already high price of cattle and the investment it would require.”
A Rabobank report, published in October 2014, took the view that rising grain production could create opportunities for feedlot beef.
“The dramatic growth in Brazilian grain production has not been matched with like for like investments in infrastructure,” it said. “As a result of historically scarce investments, Brazil’s structural deficiency is not only limited by an overdependence on high-cost transport (plagued by precarious roads and underutilized railways and waterways), but also by shortfalls across nearly every aspect of the logistics chain – from on-farm storage capacity to limited ports for exports.”
The bank explained the effect of Brazil’s double cropping system.
“The double-crop harvest now outproduces first-corn volumes, which are largely used by the domestic market,” the report said. “The growth of the ‘safrinha,’ which is targeted at exports, has made Brazil a corn exporter equivalent to the size of the U.S. in the November to December window. However, given corn’s lower value per tonne compared to soybeans, it is much less cost-effective to transport long distances by road to export ports in Brazil. As such, it is more effectively used in domestic feed rations – with the resulting beef, pork and chicken being much more cost-effective to export than corn.”
New Policy Introduced
In its Grain Market Report in June, the IGC reported on Brazil’s Agriculture and Livestock Plan for 2015-16.
The plan, announced by the Brazilian government on June 2, details the amount of credit available to farmers for the crop year which begins on Oct. 1.
“A total of BRL187.7 billion ($60 billion) has been earmarked to support farmers’ purchases of inputs, equipment and the improvement of infrastructure in rural properties,” the IGC said. “While this would represent a y/y increase of 20%, the heavy depreciation of the domestic currency means that, in U.S. dollar terms, it is actually a reduction of some 10%. In addition, high inflation is also a significant factor adding to costs.”
Chris Lyddon is World Grain’s European editor. He may be contacted at: email@example.com.