Top 5 Exports: Brazil

By Alex Brokaw  SEP 28, 2012 5:00 PM

Iron ore, crude oil, soybeans, sugar, and poultry top the list of Brazil's biggest exports.

 


MINYANVILLE ORIGINAL Over the past two decades, Brazil’s GDP has grown sixfold, from $427 million in 1992 to $2.4 billion in 2011 -- the year Brazil surpassed the UK to become the sixth largest economy in the world. This is in part thanks to record-breaking agricultural and oil exports, which helped cement Brazil’s status as a net creditor in 2008.

From 2009 through 2011, the value of total exports from Brazil increased 67% to $256 billion, according to The United Nation’s Trade Statistics Branch. This boost can be largely credited to Brazil’s largest export: iron ore.

Iron Ore

Brazil is the third largest producer of iron ore in the world, behind China and Australia, at 390 million metric tons in 2011. Brazil’s iron ore exports have jumped 216% to $41.8 billion in the past three years, and the Latin American leader is seconded only by Australia in iron ore exports -- each are accountable for one-third of global exports. Both countries were recently joined in the top three by South Africa, which surpassed India in iron ore exports earlier this year.

The world’s largest producer of iron ore is Brazil’s Vale S.A. (VALE). Vale had been Brazil’s single largest exporter of any commodity, not just iron ore, until it was eclipsed in the first half of 2012 by state-owned oil producer Petrobras (PBR) as the country's largest commodity exporter. More exports do not automatically equate to higher revenues. Over the same period, iron ore exports dipped 19% in value, as reported by Brazilian newspaper Folha, the first decline in a decade. Chinese spot prices for iron ore have dropped nearly a third since June, which has led miners like Vale, Rio Tinto Ltd. (RIO) and Australian heavyweight BHP Billiton (BHP), to consider shuttering some major mining operations. China consumes 60% of the world’s iron ore, but its slowing economy, in addition to the European debt crisis, are believed to be the driver of this year’s collapse in iron-ore prices.

However, a turnaround is expected, particularly in Brazil, where iron-ore quality is far better than competitors in Australia, India and China. As reported by Reuters, Vale’s iron ore chief, Jose Carlos Martins, believes that spot iron ore prices will reach $120 by October, and that Chinese producers will favor Brazilian imports.

Crude Oil

Iron ore isn't the only commodity that Brazil has in abundance. In 2011, Brazil was the world’s 13th largest oil producer. They’re expected to reach sixth largest by 2020, according to The Economist, thanks to the enormous amount of ‘pre-salt’ oil they possesses. Unlike iron ore, the crude oil boom is relatively new. 

BG Group (BG) discovered the Lula oil field off the coast of Brazil in 2006. The single discovery transformed Brazil’s prospects for wealth creation, as its proven and probable reserves jumped 150% to 50 billion barrels. Then-president Luiz Inácio Lula da Silva (who is the well’s namesake) was quoted at the time calling the find a "second independence for Brazil," as its potential for wealth creation is huge. Brazilian crude oil exports were 21.6 billion in 2011, with roughly one-third of the country's crude being shipped to the United States. State-owned Petrobras, the world’s tenth largest company, had a legal monopoly on Brazil’s oil industry until 1997. It controls the Campos Basin oil field, which is responsible for 80% of Brazil’s oil output. Brazilian industrial magnate Eike Batista’s OGX Petróleo (OGXPY) is another domestic player, although its efforts are greatly overshadowed by Petrobras.

This summer, Bloomberg reported that the Brazilian government has been restricting the sale of exploration areas since the Lula field was discovered five years ago, and it has shot down bids from global oil players like Exxon (XOM) and Royal Dutch Shell (RDS-A). This should have given Petrobras a leg up, but as the Wall Street Journal points out, shares of Petrobras have been trending downwards since a 2008 high. Shares of OGX haven’t fared well recently either.

Soybeans

With the United States' soybean crop expected to be the lowest yield in nine years due to drought, Brazil is poised to become the world's largest soybean producer for the first time. Brazilian soybean exports were valued at $16.3 billion in 2011, and thanks to favorable weather conditions Brazil's crop could reach 76 million tons in 2012/13, versus an expected 73 million tons from the United States, according to the International Grain Council. This is a sharp reversal from 2011/12, when Brazil's production of 66.4 million tons was significantly outweighed by the United States' 83.2 million. After soybeans futures hit an all-time high on August 30, prices took their steepest dive in the past 18 months this Monday, on news that the American Midwest soybean yield would be better than expected. Heavy rains in Brazil, where farmers are currently beginning to plant their crop, have also contributed to the sell-off. Sill, analysts expect more soybean crops will be planted in Brazil this season than ever before.

In 2010, 64% of  Brazil's soybean exports traveled to China, with the next largest supply being 6.1% to Spain, and then 5.8% to Germany.

Sugar

Brazilian cane and beet sugar exports were $14.9 billion in 2011, having risen 78.3% since 2009. Sugarcane has flourished as a crop in Brazil for over 500 years, and Brazil is currently the world's largest producer with 719 million tons harvested in 2010. In that year, Russia received the largest percentage of Brazil's exports, followed by Saudi Arabia, and India, which, coincidentally, is the world's second largest producer of sugar. Recently profiled by The Motely FoolCosan Limited (CZZ) is a key, vertically-integrated player in the Brazilian sugar and ethanol industry.  

In 1975, the Brazilian government founded Proálcool, the country's national ethanol program, which helped launch Brazil's presence in the ethanol sector. Ethanol production is now privatized in Brazil, and in 2011 Brazil produced 25% of the world's ethanol used in fuel. The Brazilian ethanol industry possesses striking similarities to the United States' corn ethanol industry. For over 30 years, the Brazilian government has required fuel to be blended with at least 20% ethanol.

Poultry

Poultry exports from Brazil totaled $7.2 billion in 2011, with the largest share of chicken parts traveling to Saudi Arabia, followed by Japan, and then China. Brazil accounts for 38% of the world's chicken exports, according to the industry's official organization Brazilian Chicken's website, and it has consistently beat out the US as the world's leading chicken exporter since 2004. The website boasts that Brazilian-bred chickens can be found on consumers' dinner tables in over 150 countries. Brasil Foods (BRFS) is one the world's largest poultry exporters. Other major exporters are international food manufacturers Tyson Foods (TSN) and France's Groupe Doux, a major supplier to Yum Brands' (YUM) KFC restaurant chain. Brasil Foods' CEO Jose Antonio recently addressed rumors that his company was seeking to acquire Tyson for $20.50 per share by explaining the Brasil Foods is not interested. 

More Top Exports From Brazil

The list of Brazil’s biggest exports goes on to include: coffee ($8 billion); oil cake ($5.7 billion); chemical wood pulp ($4.6 billion); motor vehicles ($4.4 billion); and aircraft including helicopters, airplanes, and spacecrafts ($3.9 billion).

Twitter: @brokawbrokaw
No positions in stocks mentioned.

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