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1、Consumer&RetailAgricultural Products,September 2012,In the Spotlight.,Global Agribusiness,Latin America produces,Asia consumes,By Pedro Herrera,Diego T.Maia,Ravi Jain,and,Thilan Wickramasinghe,Disclosures and Disclaimer This report must be read with the disclosures and analystcertications in the Dis
2、closure appendix,and with the Disclaimer,which forms part of it,Consumer&RetailAgricultural ProductsSeptember 2012In the Spotlight.HSBC LatAm Spotlight publications focus on countries or industries and provide comprehensivequantitative and qualitative analyses of trends,value drivers,and competitive
3、 landscapes to enable ourclients to formulate a longer-term view of risks and rewards.Why you should read this report We show how grain consumption around the world,primarily in Asia,is ballooning.Incomes areincreasing,meat consumption is booming,and grains are increasingly used for nonfood purposes
4、such as renewable fuels and starch.We demonstrate that grain supplies and inventories are down and increasingly not meeting growth inconsumption,a trend that should continue.Planted acreage per capita is down,yield improvementsare slowing,and frequent extreme climate conditions are further affecting
5、 supplies.We discuss grain price trends and dynamics,both short-and long-term,and conclude that the upwardshift in grain prices to todays levels is essentially here to stay,a new normal.We quantify the evolution of Latin America as an agricultural powerhouse,as the region has becomethe main supplier
6、 of agricultural commodities to satisfy Asian and global consumption.Asianeconomies are strong,urbanization continues,and planted acreage is falling,while meat consumptionis growing.We conclude with an explanation of why we believe Latin America will continue to be the mainbeneficiary of these trend
7、s and is positioned to exploit evolving global food dynamics.We expand on Latin American competitive advantages,huge availability of fertile land,anabundance of water,and ideal climatic conditions to meet future food demands of the world.We provide detailed company discussions and our favorite ideas
8、 for investment in Latin Americanagribusiness companies engaged in production of grains and development of farmland and in theBrazilian sugarcane-based ethanol segment.We like Adecoagro,Cosan,Tereos Internacional,and Olam International.2,abc,Consumer&RetailAgricultural Products,abc,September 2012Foo
9、d for thought:Metrics to make you think Grain consumption:The 50-year CAGR is 2.7%,far higher than the 1.7%population growth CAGR(Chart 5).Grain production:Average grain surpluses of the past 25 years were only 0.2%of consumption versus 1.5%in theprevious 25 years(Chart 17).Grain prices:The 10-year
10、CAGR was 11.1%,more than seven times the 1.5%previous 40-year CAGR.The price ofa ton of grains averaged USD100-150 for 30 years.In the past 10 years,the average was about USD250(Chart 2).Grain inventories have declined to 72 days versus the 94-day 50-year average(Chart 4).US ethanol:About 39%of US c
11、orn today is used for renewable fuels versus 6%in 2000(Chart 14).Meat consumption:Per capita meat consumption had a 50-year CAGR of 1.6%,triple the 0.6%CAGR in per capitarice consumption.Meat consumption in China grew at a 10-year CAGR of 4.2%versus 0.3%in the US.Despite that,Chinese meat consumptio
12、n is only 52kgs/year versus 110kgs in the US.It takes 2-9lbs of grains to produce one poundof meat(Charts 11,12,and 13).Planted acreage per capita:Fell at a 0.8%CAGR the past 50 years versus 1%growth in grain demand.In the early1960s,the world had 11,400 sq ft of planted area per capita,and today it
13、 is 7,500,or-34%(Chart 16).Yield improvements:Dropped to a 1.2%CAGR in the past 25 years versus 2.4%in the previous 25 years(Chart 18).Urbanization:In South and East Asian countries,urbanization rates are 1.5-2%versus 0.2-0.5%in the US and Europe,and at end-2010,only 30-50%of the population lived in
14、 urban areas versus 80-90%in the US and Europe(Chart 6).Extreme poverty:Population with incomes of less than USD1.25 per day in East Asia and the Pacific fell to 14%in2008 from 77%in 1981,to 6%from 12%in Latin America,and to 36%from 61%in South Asia(Charts 8 and 9).Southeast Asia(ex Japan)imports:36
15、%of global grain imports versus 19%50 years ago.Middle East and NorthAfrican imports increased to 25%from 9%in the same period(Chart 29).Latin American agricultural exports:Today 41%of global grain exports versus only 7%50 years ago(Chart 28).Global crop acreage:11%is in Latin America versus only 4%
16、50 years ago.The Latin American acreage CAGR inthe past 50 years was 2.4%,four times the 0.6%global average(Charts 50,51,and 52).Transportation of agricultural commodities:One gallon of fuel powers a barge with one ton of soybeans 576 milesversus 155 miles by truck.Freight from Mato Grosso in Brazil
17、 to the port of Santos,1,200 miles,costs about USD118versus only USD38 from Minneapolis to the US Gulf,also 1,200 miles(Charts 60 and 63).Farmland needs:With yield improvements stable at current rates,we estimate that in the next 50 years the world willneed 270m additional hectares to produce grains
18、,68%more than the acreage added in the past 50 years(Chart 20).Brazil:The only large country(by size)to have both a very low population density(23 persons per sq km)and solidrainfall levels(1,782mm/year),ideal conditions for agriculture(Charts 56 and 57).Farmland valuations:Since 2005,CAGR was 17.7%
19、in the Argentine corn belt,11.6%in the US corn belt,and11.3%in the state of Parana,Brazil.Average farmland prices in Brazil are USD3,700 per hectare versus USD11,000 inthe US and USD11,500 in Argentina(Charts 64 and 72).US farms versus the S&P 500.The 50-year CAGRs of US farm values and the S&P 500
20、are similar,slightly above6%,yet S&P volatility was significantly higher,making the&P risk-adjusted returns substantially lower(Charts 66and 67).3,92,5,96,104,24,27,33,123,48,58,137,65,Consumer&RetailAgricultural ProductsSeptember 2012ContentsGlobal Agribusiness:,Adecoagro SA(AGRO),abc,Investment th
21、esisBrasilAgro SA(AGRO3)Burgeoning demand for grains,has just begunClimate change,weatherevents,and agricultureLatin America produces,whileAsia consumesStructural growth drives AsianconsumptionLatin Americas competitiveadvantagesOur bullish case on land,1040,Bunge Limited(BG)Cresud SA(CRESY)SLC Agrc
22、ola(SLCE3)Cosan Limited(CZZ),Cosan SA(CSAN3)So Martinho SA(SMTO3)Tereos Internacional(TERI3)First Resources(FR SP)Olam International(OLAM SP),100108112119128131,Our views on short-term grainprice trendsSugar and ethanol:Brazil,Genting Plantations(GENP KL)134Appendix:Agribusiness,sweetens and powers
23、the world,Disclosure appendix,150,Asian palm oil,82,Disclaimer,153,Younger,nimbler traders,stitching it together4,87,Consumer Latin America has fertile soil,water,and good weather,abc,Executive summaryStrong economic and consumption growth in Asiaduring the past few years has driven equallystrong ag
24、ricultural production and sectorexpansion in Latin America.We believe thatdemand for agricultural commodities,food,andalternative fuels produced from grains and otherrenewable sources will continue unabated,andthat Latin America is the better-positioned regionof the world to provide these.In this re
25、port,wepresent our rationale for these views and discusspotential ways for investors to profit.We seeinvestment opportunities in grain producers,farmland developers,and sugarcane-basedethanol.Our 50-year analysis addresses soybeans,corn,and wheat as proxies for grains,as thesethree crops make up c70
26、%of all field crops asdefined by the US Department of Agriculture(which include barley,corn,cotton,millet,oats,peanuts,rapeseed,soybeans,sunflowers,rice,rye,sorghum,and wheat).The shift in prices seems here to stayFor nearly three decades,grain prices remainedrelatively stable at levels near USD100-
27、150 perton on average.However,since 2005 prices haverisen sharply.And,although we expect acorrection from current levels once weatherconditions normalize,we do not see grain pricesreturning to historical levels.Higher prices shouldbe a positive for farmer economics and shouldencourage further invest
28、ments to expand plantedacreage and generate yield improvements andincreased uses of technology.We note that it isincreasingly more expensive to bring new landinto production,while wider uses of technologyincrease overall costs.Thus,higher grain pricesand strong farmer economics should support theinv
29、estments necessary to increase productivity to,5,Consumer&RetailAgricultural ProductsSeptember 2012address increases in demand,while increasing thevalue of land currently under production.Burgeoning demand should continueDuring the past decade,global demand for grainshas risen significantly,driven b
30、y a variety offactors.The worlds population reached 7 billion inOctober 2011 and the UN expects it will reach 10billion by 2060.In addition,urbanization ratescontinue to increase in most emerging markets,especially East and South Asia.Income levels areincreasing,with significant numbers of people no
31、wabove extreme poverty levels(defined by theUnited Nations as less than USD1.25 per day).Consequently,per capita meat consumption hasincreased sharply in the past few years,much morethan rice,for example.One pound of animalprotein requires several pounds of grains toproduce(2lbs for poultry and up t
32、o 9lbs for beef).In addition,grains are increasingly being used fornonfood purposes such as alternative fuels(ethanol)and industrial uses such as starch.Thesedynamics point to increasing demand for grainsgoing forward.The growing Asia-Latin AmericaconnectionThere is a strong and growing link between
33、 Asia,where consumption growth has been exceedinglystrong in recent years,and Latin America,whichhas expanded its agricultural production platformto address not only huge Asian demand,but alsodomestic demand.Fifty years ago,Latin Americaaccounted for 7%of global exports of the keygrains corn,wheat,a
34、nd soybeans.Today,LatinAmerica accounts for 37%of the global graintrade,higher than that in North America(the USand Canada).Similarly,50 years ago,Asiaaccounted for 19%of global grain imports andtoday accounts for 37%.Increasing trade betweenAsia and Latin America is what HSBC chiefeconomist Stephen
35、 King calls the“SouthernSilk Road.”6,Latin American competitiveadvantagesThe agricultural boom in Latin America is a resultof several competitive advantages in the region,inour view.First is availability of unused land toaddress acreage expansion requirements.Second isabundance of water,including so
36、lid rainfall levels,and large renewable-water sources.Brazil is one ofthe only large countries in the world that has bothlow population density and very high rainfalllevels,ideal conditions for agricultural expansion.Third are the fertile soils typical of the region,alsoextremely suitable for agricu
37、lture.The humidPampas region of Argentina,for example,is one ofthe most fertile agricultural areas in the world,requiring minimal fertilizer usage and thus havingsignificant low-cost advantages.We point out,however,that the region still lacksan efficient infrastructure and logistics system tosupport
38、 the growing production platform.The costof transporting soybeans in Brazil is almost threetimes that of transporting soybeans in the US,comparing farms equidistant from correspondingports.For the region to realize its potential tobecome an agribusiness superpower,building anefficient infrastructure
39、 and logistics system is ofparamount importance,we believe.Our bullish case for investing in LatinAmerican farmlandWe remain very bullish on the potential for valueappreciation of Latin American farmland,givenits competitive advantages and the burgeoningdemand for grains.Since 2005,land prices in th
40、eUS corn belt and the state of Parana in Brazil haveappreciated at an 11%CAGR(in USD terms).Land in the Argentine corn belt appreciated evenfaster,at a 17.7%CAGR,in the same period.We compared the appreciation of US farming realestate with the S&P 500 over 50 years and foundthat the appreciation was
41、 very similar.It is,abc,Consumer&RetailAgricultural ProductsSeptember 2012important to note,however,that the S&Pvolatility was significantly higher and thusreduced the risk-adjusted returns.We believe thatland valuations should continue to outperform dueto two factors.First,growing demand for grains
42、 isdriving solid returns for farmers.And second,as itis increasingly more expensive to bring new landinto production,the values of currently producingfarms should continue to increase.Argentina recently passed a law restricting foreignownership of land,and Brazil is in the process offormulating a si
43、milar law.However,while therestrictions in Argentina are significant,aBrazilian law should primarily limit foreign landownership by sovereign entities,sovereign wealthfunds,and nongovernmental organizations(NGOs).Because significant investments arerequired to continue to expand the Brazilianagricult
44、ural platform,any Brazilian legislationmeant to address foreign ownership concernsshould ensure an open and secure environment forcorporate and commercial concerns,the mainstayof the industry,to continue investing and growing.Asian palm oilMedium-term structural price trends in palm oilappear likely
45、 to be influenced by demand,notsupply.The demand situation globally remainsstrained,while supply growth seems unlikely tohave bottlenecks going forward.Of palm oil,72%goes to food demand,where growth does not varymaterially,despite the global macroeconomiccycle.Industrial and biodiesel usage do foll
46、ow themacro cycles.This is essentially the key driver formarginal demand for global edible oils and palmoil in particular,in our view.Brazilian sugar and ethanolWe expect the 2012-13 harvest to be another yearof global sugar surplus,although lower than ourprevious expectation.We expect a surplus of
47、4-5m tons from larger supplies in Brazil,production,increases in Thailand and Australia,and Indiaremaining a net sugar exporter.We are loweringour sugar surplus expectation as a result ofweather issues in India and to some extent inBrazil.We expect sugar prices to remain-rangebound at USDc20-23/lb a
48、s a result of another yearof sugar surpluses.The Brazilian ethanol segment is experiencingseveral challenges.In the past few years,producers have diverted increasingly moresugarcane to producing sugar due to higherprofitability.In addition,a lack of investments inthe sugarcane crop and in additional
49、 ethanolproductive capacity has hampered ethanol output.Today,the segment is awaiting governmentsupport to foster private investments in ethanoland sugarcane.However,we remain bullish on thelong-term potential for the Brazilian sugarcane-based ethanol business,as it is by far the mostcost-efficient
50、and environmentally friendlyrenewable fuel today.Ethanol produced fromother grains is not competitive or sustainablelong-term without government support,in ourview.In addition,new technologies such ascellulosic ethanol,solar energy,and wind powerhave yet to be economic viable at the scale theworld n
