JP Morgan_Farming_Sep_2010


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Brazil's Soybean Farming Outlook 2010/11
Presentation at the JP Morgan Latam Agribusiness Conference in São Paulo -
Sep, 2010.

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JP Morgan_Farming_Sep_2010

  1. 1. Almanaque AprosojaBrazil’s Soybean Production Outlook September, 2010
  2. 2. Government Policies
  3. 3. Brazilian Environmental Legislation Private Farms Legal Reserve APP Indian Reservation State Park National Park Parks and Indian Reservations 1- Parks and Indian Reservations 2.294.343 km2 27% 2- Legal Reserve 2.685.542 km2 32% 3- Permanent Preservation Areas (APPs): 1.442.544 km2 17% TOTAL PRESERVED AREA: 6.059.526 km2 71% TOTAL REMAINING AREA -BRAZIL 2.455.350 km2 29% 8.514.876 km2 100% Impact of Preservation Policies in Brazil Source: Embrapa
  4. 4. Area Proposal New Forestry Code – Key Points % of 80%, 35% and 20% remains unchanged Small farms (up to aprox 300 hectares) exhempted Areas of permanent preservation can count as legal forest reserves Legal Forest Reserves (% of Tree cover in Farms) Riparian vegetation, steep slopes and hill tops remain preserved Area of APP will now count to form % of legal forest reserves Reduces from 30m to 15m requirements of riverbank cover in small rivers APPs (Areas of Permanent Preservation) Farmers who cleared farms before Jul/08 will not need to replant in the same area. They will be able to use collective areas/parks. Farmers who cleared land when it was allowed will be legal now Regularization of current farms 5 year moratorium in forest clearing for agricultureMoratorium Land registry reform and state zoning are also priorities that will contribute to a better business environment and preservation.
  5. 5. State Official Credit Limit Average Area (hectares) Cost of Production % Area Planted with Rural Credit Paraná - PR R$ 450.000,00 300,00 R$ 1.161 129% Mato Grosso - MT R$ 450.000,00 1.200,00 R$ 1.483 25% Source: Aprosoja/ Agroconsult 2009/10 Farm Credit – Opex Financing Credit limits need to be different for regions with different scales of production (2009/10) Soybean Operational Exp Funding - PR Soybean Operational Exp Funding - MT Banks 11% Banks 42%
  6. 6. - New Forestry Code - Minimum price program (PEP, PEPRO) for cotton and corn - Biotechnology approvals (RR2BT) - Capex Funding (BNDES) - PAC (Infrastructure) - Biodiesel program - Kandir Law - Credit access and cost of credit - Farm Debts problem unsolved - Rural Insurance still not effective - Bureaucracy in infrastructure investments - Exchange Rate –Overvalued BRL - Restrictions to foreign investment of land - Land registry and documentation Positive Negative Summary – Public Policies
  7. 7. Soybean Production in Mato Grosso
  8. 8. Land Use in BrazilLand Use in Brazil Source: iMEA Cost of Production COST OF PRODUCTION - SOYBEANS SEP 2010 SEASON 09/10 10/11 % Total % Change 1. INPUTS (R$/ha) R$ 956,97 R$ 768,38 61% -19,7% Seeds R$ 123,61 R$ 116,00 -6,2% Fertilizers R$ 482,31 R$ 387,50 -19,7% Chemicals R$ 351,05 R$ 264,88 -24,5% 2. FARM OPERATIONS (R$/ha) R$ 186,34 R$ 176,30 14% -5,4% 3 - OTHER COSTS (R$/ha) R$ 360,30 R$ 315,17 25% -12,5% TOTAL COST R$ 1.503,61 R$ 1.259,85 -16,2% (ex. Land and Depreciation) USD 729,91 USD 707,78 -3,0% Exchange Rate crop 09/10 @ R$ 2,06/US$ and crop 10/11 @ R$ 1,78/US$
  9. 9. Hedge Position as of September 15, 2010 PLANTING HARVEST Source: IMEA – Elaboration - Aprosoja Soybean Comercialization Status – Mato Grosso
  10. 10. Data from the PROJETO REFERÊNCIA of Aprosoja 47 Farms Monitored 80 k Hectares of Soybean 23 k Hectares of Corn 2nd Crop This project is not aimed to be the average of the state, but a reference to farmers and researchers. Farm Financial Summary – Projeto Referência (R$/ha) Source: Projeto Referencia - Aprosoja
  11. 11. Source: Projeto Referencia - Aprosoja EBITDA Gross Margin Soybeans Gross Margin Corn 2nd Crop SG&A 38% Farm Financial Summary – Projeto Referência (R$/ha) For the season 2010/11 it is predicted an increase of 61% of the EBITDA due to both price increase and direct cost reductions
  12. 12. Points to Watch in the 10/11 Season La Niña. Planting in Mato Grosso delayed for 3 weeks at least. This could effect 2nd crop yields and also transportation costs. Concern for drought later in the season in the south of the country (RS), where weather yields have been good for last two years. Weather Risk Around 56% of Brazils corn will be GM this season only in the third season after approval and 75% of RR soybeans. Corn has 9 GM events with approved cultivars, while soybeans so far only have RR, even though there are 5 events approved, including the recently BTRR2 GM Technology New interpretation of an old law (Lei n° 5.709/71) is creating uncertainty in the market. This interpretation states that brazilian companies with foreign ownership should be treated as foreign co. Restrictions on Foreign Ownership of Land The 20 largest producers in Mato Grosso planted 3 million acres (up from 1.3 mln acres five years ago) and were responsible for 20% of soybean output. (Source: IMEA) Consolidation Trend
  13. 13. Soybeans - Area and Production Projections in Brazil Mato GrossoBrazil Source: Agroconsult (Brazil) and IMEA (Mato Grosso) CAGR 2.44 % CAGR 4.92%
  14. 14. Biotechnology Source: CTNBio, Soystats 2010, Agroconsult (Brazil data) Adoption of Biotech-enhanced Soybean SeedstockGMOs Approved in Brazil Soybeans 99% 91% 80% 72% GMO soybeans planted before 2005 were brought into Brazil illegally from Argentina.
  15. 15. Biotechnology Source: CTNBio, GMO Compass, Agroconsult (Brazil data) Adoption of Biotech-enhanced Corn SeedstockGMOs Approved in Brazil Corn 99% 91% 80% 72%
  16. 16. Source: Aprosoja 170 Million hectares Pasture Conversion Incentive Index – Mato GrossoThere are 170 MM hectares of Pastures n Brazil Pasture Conversion - Source of Area Growth Bags(60kg)/hectare Cattle Opportunity Cost Convertion Costs (20%) Operational Costs (ex Inputs) Input Costs
  17. 17. Socio-Environmental Responsibility
  18. 18. Marcelo Duarte Monteiro CEO