The Central America coffee sector is set to see strong production in 2012/13 on the back of large plantings and better investment capacity. However, we believe low global prices could discourage production in the coming years, putting downside risks to the development of the sector in the medium term. The region is generally dependent on imports for corn, and we expect the production deficit to widen over our forecast period. That said, Central America is expected to remain self sufficient in sugar and even increase its potential for sugar exports, with the industry having potential to attract investment over the medium term.
- Coffee production growth to 2016/17: 24.1% to 16.2mn bags. As the region becomes more attractive to investors, we expect the coffee sector to see increased export opportunities. That said, there are major downside risks to this view, as the region will continue to be exposed to security risks, disease outbreaks and adverse weather patterns.
- Corn consumption growth to 2016/17: 11.1% to 6.8mn tonnes. Demand growth for corn will far outpace production in Central America, affecting prices and keeping the area import-dependent for its grain needs.
- Sugar production growth to 2016/17: 11.3% to 5.0mn tonnes. Most countries in the region will continue to run a small production surplus out to 2016/17, and development of the export industry could present upside risks to our production forecasts over the long term.
- 2013 real GDP growth: 3.4% year-on-year (y-o-y). Down from 3.2% in 2012 and predicted to average 3.5% over 2012-2017.
- Consumer price inflation: 4.9% y-o-y in 2013. Up from 4.8% in 2012 and predicted to average 5.1% over 2012-2017.
We see strong downside risks for coffee producers in Central America, as leaf rust has the potential to impact production in nearly every country. Downgrades to output could have a significant impact on both the domestic front (as the coffee sector is one of the largest regional employers) and coffee prices, which have rebounded in recent weeks after being one of the worst performing commodities in 2012. Central America remains a key contributor to the global export market. We ultimately expect prices to break through current multi-month resistance and to average higher than spot values.
We believe sugar will continue to follow the downturn initiated in mid-2011 and see prices averaging lower in 2013 and 2014 on the back of a well-supplied global market. We expect strong output growth across all major producers, while consumption growth is likely to start recovering from the effects of a subdued global economy by 2014. Our view for lower prices in 2012 versus 2011 has played out very well, as the 2012 average was USc21.60/lb, compared with our long held forecasts of USc22.00/lb (November 2011-October 2012) and USc22.50/lb (October-December 2012). We expect the global surplus to widen in the coming years to reach 14.6mn tonnes in 2013/14, from 10.8mn tonnes in 2011/12. This will boost the global stocksto- use ratio to 32.9% in 2012/13 and 40.9% in 2013/14 versus 26.0% in 2011/12. Therefore, we maintain our view for prices averaging lower at USc21.50/lb in 2013 and USc20.00/lb in 2014.
The Taiwanese government recently gave the go-ahead to imports of beef from Honduras, as the country's output now complies with a series of food quality and safety requirements. The approval allows two major processing plants in the country to export to Taiwan, which could create opportunities for 375 additional jobs at the plants and for 200 livestock producers to supply the plants.