Central America Agribusiness Report Q2 2014
Apr 14, 2014 - Business Monitor International - 137 pages
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The region is still struggling with disease outbreaks in the coffee sector in 2013/14. We believe the region will continue to suffer as low global coffee prices limit investment potential. Even if prices have rebounded recently, we believe they are overstretched and see them going back towards the USc140-150/lb level in the near term. Central America 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 selfsufficient in sugar and even increase its potential for sugar exports. The sugar industry has the potential to attract investment over the medium term.
  • Coffee production growth to 2017/18: 10.9% to 14.9mn bags. We believe the coffee sector will continue to battle with disease and weather problems, while low global prices will limit investment in the crop, at least in the coming years. We see more potential for the sector in the long term.
  • Corn consumption growth to 2018: 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 2017/18: 4.2% to 5.2mn tonnes. Most countries in the region will continue to run a small production surplus out to 2017/18, and development of the export industry could present upside risks to our production forecasts over the long term.
  • 2014 real GDP growth: 3.7% year-on-year (y-o-y). This compares with 3.2% growth in 2013. Real GDP growth is predicted to average 3.7% over our forecast period.
  • Consumer price inflation: 4.5% y-o-y in 2014. Stable compared with 2013 and predicted to average 4.9% over 2012-2017.
Industry Outlook

Our view for the decrease in Central American coffee production to be limited in 2013/14 despite the outbreak of disease has played out well. We estimate that overall regional output fell by only 2.5%, in contrast with initial forecasts for output to fall by 30-40%. Costa Rica was the most affected by the rust outbreak, and output there fell by 14.9% year-on-year (y-o-y) in 2013/14, while output in Honduras and Nicaragua actually increased by 8.7% and 2.2% y-o-y respectively. Promecafe, the Central American coffee organisation, recently confirmed this, indicating that losses from the outbreak of coffee rust in 2013/14 were more modest than initially anticipated. Indeed, losses were pegged around 1.76mn bags, compared with 1.89mn bags previously.

As highlighted in our last corn forecast on November 25 2014, we believed the bulk of the declines in corn prices were behind us, and that prices would slowly grind lower over the short term. This view largely played out, as prices reached a trough around the USc410/bushel level in January. Although prices have risen and are currently approaching USc450/bushel, we believe they will range-trade over the coming weeks between USc425 and USc475/bushel as the South American harvest progresses and the market awaits US planting expectations. Moreover, neither speculative positions nor technical momentum indicators suggest a large move in prices is on the cards.

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