Agribusiness sees mixed outlook: grains rise, livestock profits rebound

The swift pace of harvesting has compensated for initial delays in planting. By the end of the first week of November, Agroconsult had covered 67% of the soybean area anticipated for the 2024/25 cycle. For comparison, harvesters had covered 60% of the area by the same time last year and 63% on average over the past five years, according to André Pessoa, CEO of the consultancy. In its October report, the National Supply Company (CONAB) projected a record grain harvest for the current season, estimated at 322.53 million tonnes—a 6.3% increase in productivity and a 1.8% rise in planted area compared to the 297.98 million tonnes produced last year.

Experts foresee a historic soybean harvest, with Rabobank analyst Marcela Marini estimating a yield of 167 million tonnes, up 9% from the 2023/24 cycle. Although soybean prices on the Chicago Board of Trade have dropped 22% this year, they have risen 8% in reais due to the Brazilian currency’s devaluation against the dollar. Meanwhile, Daniel Furlan Amaral, director of economics and regulatory affairs at the Brazilian Vegetable Oil Industry Association (Abiove), forecasts even greater production potential, ranging between 168 million and 172 million tonnes. Of this, he expects 100 million to 104 million tonnes to be exported in 2025, with 56 million to 60 million tonnes processed domestically into bran and oil. He highlights an optimistic outlook for bran exports and anticipates growth in the oil market, driven by an increase in the biodiesel blend ratio to 15% starting in March 2025.

So far, CONAB reports favorable weather conditions supporting the prospect of a record harvest. As of early November, climate models suggested a moderate and short-lived La Niña phenomenon. Forecasts from the National Institute of Meteorology (Inmet) for the remainder of the year indicate “below-average rainfall for much of the country, particularly in the Northeast,” but in volumes sufficient to sustain crop development.

“Agribusiness will once again play a pivotal role in shaping Gross Domestic Product (GDP) in 2025,” says Sérgio Vale, chief economist at MB Associados, citing an anticipated 8% increase in grain production. Despite uncertainties surrounding agricultural prices, largely tied to the outlook for China’s economy next year, Mr. Vale predicts an improving trend for the sector, contingent on continued currency depreciation and confirmed higher production volumes.

Data from the first half of 2024, compiled by the Center for Advanced Studies in Applied Economics (CEPEA) at the School of Agriculture of the University of São Paulo (Esalq-USP) in partnership with the Confederation of Agriculture and Livestock of Brazil (CNA), revealed a 3.5% decline in agribusiness GDP in terms of gross income. However, the volume increased by 2.9%, following the Brazilian Institute of Geography and Statistics (IBGE) methodology for national accounts. Looking ahead, Maciel Silva, deputy technical director at CNA, notes that agribusiness GDP performance for the rest of the year will depend primarily on price trends and production levels in the beef cattle industry. Livestock GDP has already posted a 15% jump in real income in the first half of the year, with a modest 0.50% rise in volume. In contrast, the agricultural sector recorded declines of 1.8% in real income and 5.1% in volume during the same period.

Mr. Silva notes that falling prices have been the primary driver behind the real income performance of the agribusiness sector as a whole. While prices are projected to recover in the last quarter of this year, this rebound is unlikely to prevent a “small decline” in GDP for the 12 months ending in 2024. However, he forecasts a reversal of the sector’s three-year GDP decline in 2025, driven by solid production potential, particularly in grains.

Despite this outlook, economic results within agribusiness are expected to remain uneven, with better performance anticipated in crops like coffee and in the livestock sector. According to Rabobank analysts Bruno Fonseca and Marcela Marini, soybean operating margins are expected to drop from around 40% this year to 30% in 2025, significantly below the 64% achieved in 2022. Corn profitability is also projected to decline, falling from 8% this year to 4% in 2025, far from the 56% recorded in 2022. In contrast, coffee margins for the current harvest are estimated to reach 47%, well above the five-year average of 31%, says Rabobank analyst Guilherme Morya.

The graph below provides an overview of Brazil’s container coffee bean exports. The information comes from DataLiner data by Datamar.

Brazilian Coffee Exports | Jan 2021 – Sep 2024 | TEUs

Source: DataLiner (click here to request a demo)

Mr. Pessoa highlights that, on average, cash generation in the grain sector will suffice to cover production costs but fall short of covering financial costs and depreciation. In the context of low profitability and rising interest rates, the economic system will likely become increasingly selective, focusing credit allocations on companies and producers with healthier balance sheets. “A significant number of producers have had their credit limits revised downward by banks,” Mr. Pessoa says, forcing many to seek alternative financing options.

The anticipated “turning point” in the cattle cycle, expected to occur in 2025 and 2026, may already be underway, according to Maurício Nogueira Palma, director of Athenagro. Between July and November, CEPEA data shows the average price for an arroba of fat cattle in São Paulo increased by 12.4% compared to the first half of the year, rising from R$233 to R$262. Mr. Palma projects that the average arroba (a metric unit equal to 15 kilos) price will rise by approximately 25% next year, reaching around R$318. He further predicts that profitability across livestock farming should improve across the board, with positive results expected for the beef cattle cycle, pig farming, and, to a lesser extent, poultry farming.

Source: Valor Internacional

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