Exchange Rate and Inflation Impact Producers

Report Highlights: The weak Brazilian currency and high inflation, fuelled by an uncertain political atmosphere, will have a large impact on all producers in Brazil. Farmers are getting higher prices to export corn, which is increasing the price of domestic corn. Because the exchange rate is making corn exports more lucrative, 2016/2017 wheat area is forecast to decrease slightly to 2.2 million hectares (mHA) as a result of some producers switching to more second crop “safrinha" corn in the south of Brazil. 2016/2017 corn production is forecast at 86 million metric tons (mmt), which – if realized – would be a record. Rice producers have been hit by higher production costs including electricity, transport, and taxes, which is impacting their profit margins.

Wheat

Wheat

2014/2015

2015/2016

2016/2017

Market Begin Year

Oct 2014

Oct 2015

Oct 2016

Brazil

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

2730

2730

2450

2450

0

2200

Beginning Stocks

1887

1887

870

870

0

870

Production

6000

6000

5540

5600

0

6000

MY Imports

5374

5374

6500

6000

0

5300

TY Imports

5869

5869

6300

5800

0

5300

TY Imp. from U.S.

1296

1296

0

500

0

0

Total Supply

13261

13261

12910

12470

0

12170

MY Exports

1691

1691

1300

1400

0

900

TY Exports

1688

1688

1300

1400

0

900

Feed and Residual

300

300

600

300

0

300

FSI Consumption

10400

10400

10000

9900

0

9700

Total Consumption

10700

10700

10600

10200

0

10000

Ending Stocks

870

870

1010

870

0

1270

Total Distribution

13261

13261

12910

12470

0

12170

(1000 HA) ,(1000 MT)

2016/2017 Wheat Supplies: 2016/2017 area is forecast to decrease slightly to 2.2 million hectares (mHA) as a result of some producers switching to more second crop “safrinha" corn in the south of Brazil, as corn exports are more profitable right now. 2016/2017 production is forecast to increase 7 percent from the previous based on a return to normal weather. 2015/2016 was lower due to severe rains in the state of Rio Grande do Sul. Production costs have soared due to a strong dollar and higher energy costs in 2015.

The Brazilian currency depreciated over 40 percent in 2015 against the dollar, which has caused inputs that are imported to be more expensive. In addition, inflation is over ten percent, which is hitting consumers and producers alike in the pocketbook for everyday goods and services. Lastly, while the cost of oil is the lowest it has been in a decade globally, the price for gas and diesel has continued to increase in Brazil – the approximate cost of gasoline in Brasilia is US$4/gallon. All these factors are having an influence of producers planting decisions.

2016/2017 Wheat Trade: 2016/2017 imports are expected to decline eleven percent from the previous year to 5.3 mmt due to increased logistic costs and decreased consumption. Despite large shipments in 2014, the United States lost its commanding market share in 2015 as Argentina re-entered the market. It's likely that Argentina will continue to dominate Brazilian wheat imports, as the new Argentine President eliminated wheat export restrictions, making Argentine wheat even more competitive in Brazil. Additionally, Mercosul wheat does not face the same 10 percent Common External Tariff (TEC) that North American wheat does. 2015/2016 Exports are estimated at 6 mmt, lower than USDA official numbers, based on pace and decreasing consumption.

2016/2017 Wheat Consumption: 2016/2017 wheat consumption is expected to decrease from the previous year to 10 mmt due to an increasingly difficult economic situation for Brazilian consumers. It's expected that consumers will reduce the amount of higher value wheat-based products from their diets, due to increased prices from higher costs of production. 2015/2016 wheat consumption is also lower than USDA official numbers based on this trend. The Brazilian Central Bank's outlook for the exchange rate in 2016 and 2017 is R$3.99 and R$4.17 to one U.S. Dollar, respectively. Based on this, it seems likely that a downward trend of consumption will continue, due to higher import and input costs.

Brazil Wheat Imports HTS 100110 and 100190

Wheat, Group 60 (2012)

Partner Country

Quantity (Unit: metric tons)

CY2013

CY2014

CY2015

World

7,273,279

5,783,030

5,170,437

Argentina

2,539,712

1,569,461

3,819,536

Paraguay

522,087

172,797

566,734

United States

3,475,270

2,639,554

451,784

Uruguay

408,031

1,079,236

317,913

Switzerland

-

-

14,425

Lebanon

52

33

44

China

-

-

1

Italy

-

-

-

Taiwan

-

-

-

Canada

328,127

321,948

-

Brazil Wheat Flour Imports HTS 1101

Wheat Flour, Group 44 (2012)

Wheat Equivalent (conversion 1.368)

Partner Country

Quantity (Units: metric tons)

CY2013

CY2014

CY2015

World

189,290

246,730

305,909

Argentina

100,708

197,247

273,595

Paraguay

47,886

8,728

15,980

Uruguay

36,673

27,989

12,744

Italy

745

942

1,765

Belgium

36

16

576

France

331

187

336

China

-

112

199

Suriname

-

388

194

United States

139

162

178

Turkey

1,186

7,798

96

Peru

-

1,247

88

Canada

1,293

923

37

United Kingdom

58

44

29

Portugal

8

45

26

Greece

-

23

23

Netherlands

225

821

20

Lebanon

-

11

19

Israel

-

-

3

Germany

-

2

1

Austria

-

-

-

Australia

1

-

-

India

-

46

-

U.S. Wheat Exports to Brazil (tons)

2010

2011

2012

2013

2014

2015

494,008

104,248

54,508

3,475,270

2,639,554

451,784

CORN

Corn

2014/2015

2015/2016

2016/2017

Market Begin Year

Mar 2015

Mar 2016

Mar 2017

Brazil

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

15750

15750

16200

16200

0

16500

Beginning Stocks

13972

13972

7922

7922

0

7522

Production

85000

85000

84000

85000

0

86000

MY Imports

400

400

600

600

0

600

TY Imports

534

534

500

600

0

600

TY Imp. from U.S.

0

0

0

0

0

0

Total Supply

99372

99372

92522

93522

0

94122

MY Exports

34450

34450

28000

28000

0

28000

TY Exports

21909

21909

37500

35000

0

30000

Feed and Residual

48000

48000

49000

49000

0

50000

FSI Consumption

9000

9000

9000

9000

0

9000

Total Consumption

57000

57000

58000

58000

0

59000

Ending Stocks

7922

7922

6522

7522

0

7122

Total Distribution

99372

99372

92522

93522

0

94122

(1000 HA) ,(1000 MT)

2016/2017 Corn Supplies: 2016/2017 planted area is expected to increase slightly to 16.5 mHa due to higher domestic corn prices. The exchange rate is driving production, as the strong dollar translates into more Brazilian currency for producers. 2016/2017 production is forecast at 86 mmt, which – if realized – would be a record. In recent years the second “safrinha" crop has been growing and it now represents over 65 percent of the total crop. While the exchange is good for exports, if the Brazilian currency continues its devaluation it will squeeze producers' profit margins as imported inputs become more expensive. Public stocks are estimated at about 1 mmt.

2016/2017 Corn Consumption: 2016/2017 corn consumption is estimated at 58 mmt, a one percent increase from the previous year based on the growing poultry and pork sectors. According to the Brazilian Feed Industry (Sindirações), the feed industry is only expected to grow about two percent in 2016, due to a more competitive export market for corn and soybeans. Because exports have been so lucrative due to the exchange rate, domestic corn prices for feed have increased over 50% in the last year. Pork and poultry producers have warned consumers that this will mean higher prices for chicken and pork. The federal government intervened by releasing some public stocks and some state governments have temporarily waived the inter-state (ICMS) tax to reduce the pressure on livestock producers.

Representing less than one percent of ethanol production in Brazil, corn ethanol plants continue to come online. There are currently four corn ethanol plants in Brazil with three new plants planned for 2016.

2016/2017 Corn Trade: 2015/2016 exports are expected to continue their strong pace from the previous year's record exports. This is largely a function of the exchange rate as opposed to higher commodity prices. Farmers are getting more Brazilian currency for their corn, which is incentivizing exports, but also driving up the prices of domestic corn. The government intervened and release some government owned stocks to temporarily bring domestic prices back down. The pork and poultry sectors have been the hardest hit by the high domestic prices. Recently, GTFoods Group, the largest poultry producers in the state of Parana imported 90,000 mt of corn from Argentina supply their farms until the second “safrinha" crop is harvest in June/July.

It's expected that the exchange rate will stabilize as Brazil starts the difficult process of addressing their simultaneous economic and political crises, with the Brazilian Central Bank's outlook for the exchange rate in 2016 and 2017 at R$3.99 and R$4.17 to one U.S. Dollar, respectively. Because of that, Post forecasts 2016/2017 exports continue to be steady at 28 mmt.

The federal government is currently considering levying a 2.8% export tax on corn and soybeans as a way to bolster revenue. The tax is widely seen as regressive and would be met with a lot of resistance from the agricultural industry. Three states (Goias, Mato Grosso, and Mato Grosso do Sul) have attempted to impose a de facto export tax on grains by revoking the interstate tax exception for agricultural exports. The initiatives were effectively killed when the Governor of Goias overturned the tax once it became evident that traders were going to other states to buy, which harms the state producers.

Brazil Import Statistics

Commodity: 1005, Corn (Maize)

Partner Country

Quantity (Units: 1000 mt)

CY2013

CY2014

CY2015

World

911.39

773.04

369.99

Paraguay

911.39

773.04

369.99

Argentina

827.30

768.14

367.32

United States

56.03

3.64

2.04

Bolivia

0.51

0.76

0.50

Spain

0.04

0.09

0.13

Lebanon

0.02

0.02

0.01

Brazil Export Statistics

Commodity: 1005, Corn (Maize)

Partner Country

Quantity (Units: 1,000 mt)

CY2013

CY2014

CY2015

World

26,624.89

20,654.64

28,923.95

Vietnam

1,193.54

3,185.38

4,841.36

Iran

2,168.57

4,698.58

4,207.98

Korea South

3,484.88

1,900.08

3,004.04

Japan

3,737.26

1,311.81

2,776.86

Taiwan

2,250.72

1,484.87

2,212.40

Egypt

1,592.99

1,246.23

2,008.86

Malaysia

1,002.29

1,260.23

1,682.30

Indonesia

1,346.01

1,261.38

1,154.84

Algeria

766.44

647.12

962.66

Spain

784.35

218.16

880.52

Saudi Arabia

1,132.38

726.27

744.80

Morocco

982.04

683.84

672.35

Dominican Republic

549.41

328.45

543.28

Netherlands

739.85

293.19

390.11

South Africa

0.77

-

321.68

Mexico

67.73

0.00

315.20

United Arab Emirates

175.84

86.02

298.81

Bangladesh

-

-

190.19

Costa Rica

90.49

7.55

171.48

United States

1,039.16

3.40

156.20

China

48.18

24.40

146.92

Jordan

100.39

109.12

129.64

Tunisia

288.21

199.53

124.94

Guatemala

112.53

-

95.07

Panama

85.67

0.02

92.96

Venezuela

97.14

139.74

89.34

Kuwait

109.67

30.22

85.84

Philippines

10.64

0.11

67.11

Israel

195.33

140.36

66.00

El Salvador

37.51

0.29

63.21

Austria

-

-

61.36

Nicaragua

38.28

11.33

58.85

Cuba

152.70

177.16

57.85

Puerto Rico (U.S.)

77.56

8.00

56.13

Honduras

29.43

0.26

38.95

Angola

12.55

16.71

37.12

Ecuador

31.03

69.26

34.54

Peru

128.38

5.55

33.41

Oman

36.00

37.50

11.48

Paraguay

6.44

5.15

6.63

Turkey

1.84

9.37

5.94

India

2.11

0.33

5.26

Myanmar

-

-

3.51

Pakistan

3.00

-

2.49

Bolivia

2.83

3.38

2.03

Colombia

825.29

0.88

1.64

Guyana

0.87

1.26

1.57

Singapore

-

2.81

1.07

Argentina

1.22

1.28

0.93

RICE, MILLED

Rice, Milled

2014/2015

2015/2016

2016/2017

Market Begin Year

Apr 2015

Apr 2016

Apr 2017

Brazil

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

2295

2295

2150

2100

0

2300

Beginning Stocks

639

639

694

694

0

544

Milled Production

8465

8465

7905

7800

0

8500

Rough Production

12449

12449

11625

11471

0

12500

Milling Rate (.9999)

6800

6800

6800

6800

0

6800

MY Imports

450

450

700

800

0

600

TY Imports

365

365

700

700

0

600

TY Imp. from U.S.

0

0

0

0

0

0

Total Supply

9554

9554

9299

9294

0

9644

MY Exports

930

930

830

800

0

800

TY Exports

895

895

800

800

0

800

Consumption and Residual

7930

7930

7940

7950

0

8000

Ending Stocks

694

694

529

544

0

844

Total Distribution

9554

9554

9299

9294

0

9644

(1000 HA) ,(1000 MT)

2016/2017 Rice Supplies: 2016/2017 rice area is estimated at 2.5 mHA, up marginally from the previous year. Production is also expected to increase to 8.5 mmt (milled). While domestic prices in 2015 have improved, farmers have been hit by higher production costs including electricity, transport, and taxes. Stocks continue to be low, which also keeps the price higher. The National Food Supply Company (CONAB) is calling on industries, cooperatives and associations to provide their annual assessment of private rice stocks. Last year's survey showed 116,530 mt of milled rice held in private stocks. CONAB holds 95,365 mt of public stocks.

2016/2017 Rice Consumption: 2016/2017 rice consumption is expected to be slightly higher to 8 mmt based on population growth. Consumption is unlikely to decrease, as the average Brazilian consumes 42kg of rice per year and it is generally served for both lunch and dinner.

2016/2017 Rice Trade: 2016/2017 rice exports are expected to decrease to 800,000 metric tons due to potential competition from the United States in Cuba as trade restrictions between the two countries are eased. U.S. rice producers see a real market in Cuba and Secretary Vilsack's recent visits there could signal the opening of a strong market. In 2015, Cuba was the largest market for Brazilian rice, overtaking Venezuela from 2014. Interestingly, Brazil exported 23,000 mt of broken rice to the United States in February, as Brazilian prices were competitive with Southeast Asian exporters.

Imports for 2016/2017 are expected to drop slightly from the previous year to 600,000 metric tons, based on fewer exports. Brazil's main rice suppliers are other Mercosul countries, Paraguay, Uruguay and Argentina.

Brazil Import Statistics

Commodity: Rice, Group 58 (2012)

Partner Country

Quantity (Units: 1,000 mt)

CY2013

CY2014

CY2015

World

757.18

624.40

376.99

Paraguay

309.94

326.53

269.11

Argentina

239.54

96.15

48.75

Uruguay

179.83

126.90

31.72

Guyana

0.04

6.56

19.41

Italy

3.66

2.21

3.05

Chile

0.00

4.46

2.87

Vietnam

19.94

0.17

0.74

United States

0.59

0.14

0.72

Thailand

0.38

60.88

0.49

France

0.05

0.05

0.04

India

0.06

0.03

0.04

Pakistan

0.00

0.31

0.03

Portugal

0.00

0.01

0.01

Spain

0.01

0.02

0.01

Brazil Export Statistics

Commodity: Rice, Group 58 (2012)

Partner Country

Quantity (Units: 1,000 mt)

CY2013

CY2014

CY2015

World

918.05

929.92

961.54

Cuba

107.47

105.02

170.29

Venezuela

148.07

141.52

119.98

Senegal

95.18

112.24

106.47

Nicaragua

105.43

65.74

78.18

Sierra Leone

74.84

84.59

74.53

Peru

14.81

32.46

66.06

Gambia

70.28

78.23

42.51

Iraq

0.00

30.00

42.00

Switzerland

20.30

31.53

41.11

Bolivia

25.79

50.68

33.49

Costa Rica

20.00

24.33

25.09

United States

8.41

14.60

18.61

Mali

0.00

0.00

16.74

Netherlands

56.39

22.32

13.07

South Africa

5.37

0.23

11.10

Nigeria

0.00

0.05

11.07

Cape Verde

3.25

6.45

11.07

Saudi Arabia

3.91

8.73

9.90

Benin

73.98

31.41

9.53

Angola

16.93

21.12

9.10

Trinidad & Tobago

9.49

9.01

8.95

Puerto Rico (U.S.)

1.54

1.18

8.24

Chile

0.50

4.91

7.93

Panama

27.86

7.81

3.61

Belgium

2.00

1.16

3.45

Honduras

0.00

0.00

2.60

Canada

0.29

0.33

1.64

Libya

1.20

1.43

1.45

St. Vincent & the Grenadines

2.93

0.00

1.35

Netherlands Antilles

0.89

1.80

1.24

United Kingdom

3.12

1.04

1.22

Barbados

1.45

1.52

1.03

Argentina

0.98

0.76

0.99

Namibia

1.00

0.93

0.95

Lebanon

0.14

0.20

0.77

Bahamas

0.48

0.78

0.70

Jordan

0.00

0.00

0.70

Paraguay

0.62

0.65

0.57

Equatorial Guinea

0.65

0.71

0.49

Uruguay

2.12

0.28

0.45

Antigua & Barbuda

0.18

0.20

0.43

United Arab Emirates

0.00

0.00

0.41

Italy

0.22

0.02

0.41

Guinea-Bissau

0.00

0.03

0.38

Israel

0.33

0.17

0.38

Aruba

0.08

0.03

0.23

Algeria

0.43

0.65

0.23

Spain

1.12

0.00

0.21

Portugal

0.09

0.08

0.17

Lithuania

0.17

0.10

0.17

Guatemala

7.20

0.10

0.15

Cyprus

0.00

0.00

0.05

New Zealand

0.05

0.05

0.05

Mexico

0.00

0.05

0.05

Government Support for Commercialization and Export:

Total government support across all commodities was dramatically reduced to just 27,000 metric tons in 2015, which is the lowest since 2008. This can be attributed to higher commodity prices as a result of the strong dollar making Brazilian exports more profitable. PEPRO was the only commercialization support program used in 2015 for 27,000 mt of rubber.

The government has the opportunity to update the minimum price once a year, and the price varies by commodity and classification, and by region of the country. This typically takes place in May/June.

2016 Rice Minimum Prices

Product/Class

Covered States and Regions

2016 Minimum Prices (with US$1=R$4.028)

Eligibility Period

60kg Sack

Metric Ton

cwt

BRL

USD

USD

USD

Long Rice (Paddy)

All of Brazil

R$24.45

$6.07

$101.17

$4.58

Feb-Jan

Long Rice (Paddy)

Rio Grande do Sul and Santa Catarina

R$18.90 (50KG)

$4.69

$93.80

$4.25

Feb-Jan

2016 Wheat Minimum Prices

Product/Class

Covered States and Regions

2016 Minimum Prices (with US$1=R$4.028)

Eligibility Period

Metric ton

Bushel

BRL

USD

USD

Wheat

All of Brazil

R$641.50

$159.26

$4.33

Jan-May

Wheat

Parana, Rio Grande do Sul, and Santa Catarina

R$583.00

$144.74

$3.94

Jan-Jun

2016 Corn Minimum Prices

Product/Class

Covered States and Regions

2016 Minimum Prices (with US$1=R$4.028)

Eligibility Period

60kg Sack

Metric Ton

Bushel

BRL

USD

USD

USD

Corn

Mato Grosso

R$13.56

$3.37

$56.11

$1.43

Jan 1-Dec 31

Government Support for Corn(Quantity Unit: 1,000 mt)

Program

2010

2011

2012

2013

2014

2015

Acquisition (AGF)

324

1

0

364

16

0

PEP

11,229

0

0

0

0

0

PROP

0

0

0

0

0

0

PEPRO

875

0

0

8,862

5,803

0

Total

12,428

1

0

9,226

5,819

0

Production

56,100

57,514

73,000

81,500

80,000

85,000

Participation %

22%

0

0

11%

7%

0

Government Support for Rice (Quantity Unit: 1,000 mt)

Program

2010

2011

2012

2013

2014

2015

Acquisition (AGF)

0

396

0.03

0

0

0

PEP

1,538

0

0

0

0

0

PROP

0

0

0

0

0

0

PEPRO

64

0

0

0

0

0

Total

1,602

0

0.03

0

0

0

Production (rough)

13,613

11,600

11,819

12,206

12,353

11,765

Participation %

12%

0%

0%

0%

0%

0%

Government Support for Wheat (Quantity Unit: 1,000 mt)

Program

2010

2011

2012

2013

2014

2015

Acquisition (AGF)

0

1

446

0

15

0

PEP

2,668

849

1,594

0

0

0

PEPRO

0

53

87

0

795

0

Total

2,668

903

2,126.45

0

810

0

Production

5,026

5,882

5,800

4,380

5,300

6,000

Participation %

53%

15%

36.7%

0

15%

0