Boston, MA -- (ReleaseWire) -- 04/16/2014 -- Overall, we believe there is the most potential for growth in Brazil's soybean, livestock/dairy and coffee segments over the medium term. This is because of a shift in food consumption growth towards Asia for these items, while demand growth from traditional buyers will be subdued. We are more cautious about the sugar cane sector as a whole, as mills are suffering from low profitability linked to low global sugar prices and heavy debt burdens. Only the ethanol industry will encourage cane production growth, but it is still unclear if the government will continue to see biofuels as a priority in its energy mix in the medium term. In the short term, we highlight downside risks to the coming soybean harvests, especially as infrastructure bottlenecks could limit export potential in the coming years. Recurring weather concerns linked to climate will pose downside risks to all our forecasts over the coming years and to global prices as the country is such a significant exporter.
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- Soybean production growth to 2017/18: 8.7% to 89.1mn tonnes. This will come as more area is shifted from corn to soy in the coming years on the back of an extremely competitive soy/corn ratio by historical standards.
- Poultry consumption growth to 2018: 33.8% to 17.3mn tonnes. A growing middle class and the general preference for poultry over all other meat groups because of its health properties and lower prices will encourage demand growth.
- Milk production growth to 2017/18: 33.0% to 43.1mn tonnes. Brazil has the potential to become a significant exporter of dairy products over the forecast period to 2018 if its milk collection and processing infrastructure can be brought up to international standards.
- 2014 real GDP growth: 2.0% (down from 2.3% in 2013).
- 2014 consumer price inflation: 5.8% average (down from 5.8% in 2012)
- BMI universe agribusiness market value: 3.7% year-on-year (y-o-y) decrease to US$167.8bn in 2014, forecast to increase by an average of 5.1% annually between 2012/13 and 2017/18.
We believe the recent acquisition by Cosan of America Latina Logistica (ALL) will put Sao Martinho at a slight disadvantage as the company is very dependent on other players for the transportation of its products in a country where logistics are particularly inefficient and do not keep up with the pace of production and export demand. As indicated in a previous article (see 'Cosan To Diversify Into Logistics', 5 March), the proposed takeover will create the largest logistics operator in Latin America. As a result, Cosan will control the railway operations it already uses to move its sugar and ethanol products to ports and export. Railways are considered a much safer and more efficient option than roads to transport goods around the country because of crumbling and inefficient road networks, while the limited number of inland waterways constrains alternatives.
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