Required Report - public distribution

**Date:** 3/19/2004

**GAIN Report Number:** BR4607

BR4607

**Brazil**

**Grain and Feed**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)William W. Westman, Agricultural Counselor

U.S. Embassy

**Prepared by:**

Oliver L. Flake

**Report Highlights:**

Post estimates 2003/04 wheat production at 5.9 million tons and record
exports at 900,000 tons. Marketing year imports are forecast at 5.3
million tons, which is 1.4 million tons less than the previous year.
Production in 2004/05 is forecast at 4.5 million tons with imports at
5.5 million tons. Corn production is 2003/04 is forecast at 41.5 million
tons and marketing year exports at 4.0 million tons. Post forecasts
exports to increase to 4.5 million tons in 2004/05 with production at
43.5 million tons. Rice production is forecast up from the previous Post
forecast to 8.3 million tons with calendar 2004 imports at 600,000 tons.
Imports are forecast to increase in 2004/05 to 1.0 million tons as
production falls to 7.5 million tons. Sorghum production in 2003/04 is
estimated at a record 2.1 million tons with record exports at 450,000
tons. Production in 2004/05 is forecast at 2.2 million tons and exports
at 400,000 tons.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Unscheduled Report

Brasilia \[BR1\]

\[BR\]

Table of Contents

[**Executive Summary 3**](#executive-summary)

[Economic Overview 4](#economic-overview)

[Wheat 5](#wheat)

[Wheat PS&D 5](#wheat-psd)

[Production 5](#production)

[Trade 6](#trade)

[Imports of U.S. Wheat 8](#imports-of-u.s.-wheat)

[U.S. Competition 9](#u.s.-competition)

[Consumption 11](#consumption)

[Ending Stocks 12](#ending-stocks)

[Corn 12](#corn)

[Corn PS&D 12](#corn-psd)

[Production 12](#production-1)

[Trade 15](#trade-1)

[Consumption 16](#consumption-1)

[Ending Stocks 17](#ending-stocks-1)

[Rice 18](#rice)

[Rice PS&D 18](#rice-psd)

[Production 18](#production-2)

[Trade 20](#trade-2)

[Consumption 22](#consumption-2)

[Ending Stocks 22](#ending-stocks-2)

[Sorghum PS&D 23](#sorghum-psd)

[Production 23](#production-3)

[Trade 23](#trade-3)

[Policy 24](#policy)

[MERCOSUL 24](#mercosul)

[Administrative and Fiscal Measures
25](#administrative-and-fiscal-measures)

[Support Prices 25](#support-prices)

[Key Elements of Domestic Support Programs
26](#key-elements-of-domestic-support-programs)

# Executive Summary

Wheat production in 2003/04 is estimated at 5.9 million tons, which is
nearly double the previous year's crop. As a result, Brazil is a
significant wheat exporter for the first time with record exports
forecast at 900,000 tons. Due to the large crop, imports are forecast at
only 5.3 million tons for the marketing year with the U.S. forecast to
supply 400,000 tons. Production in 2004/05 is forecast at 4.5 million
tons with imports at 5.5 million and only 100,000 tons of exports.

Corn production in 2003/04 is forecast at 41.5 million tons; a 3 million
ton decrease from last year's bumper crop. Trade year exports are
forecast at 5.5 million tons with most having already been shipped.
Production in 2004/05 is expected to be 43.5 million tons with trade
year exports of 3.5 million tons. Exports would be even greater if not
for very strong domestic demand from the pork and poultry industries.

Brazil is forecast to produce a very large rice crop this year of 8.3
million tons (milled basis) or 12.2 million tons of rough production
with imports falling from the previous year to just 500,000 tons for the
marketing year. Production will be high due to strong price incentives
at planting as well as very good planting weather. Post forecasts
2004/05 production at 7.5 million tons milled or 11.0 million tons rough
basis. Imports are forecast to rebound to 1.0 million tons due to the
smaller crop and stronger domestic demand.

Sorghum production is soaring in Brazil with the 2003 crop estimated at
2.1 million tons and exports at a record 450,000 tons with most shipped
to the EU. Production is expected to increase only slightly to 2.2
million tons in 2004/05 with plantings restrained by lack of seeds.
Exports are forecast to remain strong at 400,000 tons due to competitive
domestic prices and high international corn prices.

# 

# 

# 

# Economic Overview

Brazil, like other developing economies, is vulnerable to exchange rate
fluctuations, and large capital inflows and outflows. Intense pressure
on the exchange rate and Brazil's high debt to GDP ratio exacerbates
this situation. If investors lose confidence, the flows register a
downward trend, weakening the local currency, which leads investors to
limit lending. Therefore, the cost of money increases. A reduction in
the dependence on foreign capital seems desirable; however, for the
foreseeable future, Brazil will continue to rely on foreign investment.
For now, the Brazilian economic and political outlook is guardedly
optimistic. Though Brazil's new President, Luiz Ignacio Lula da Silva,
known as Lula, hails from the Labor Party, he continued the sound
macroeconomic policies of his predecessor, Fernando Henrique Cardoso,
since taking power in January 2003. In addition, Lula has shown an
ability to press forward with reforms in the Brazilian Congress, which
at least in the short run is more likely to ensure growth and expand tax
revenues.

**Economic Indicators**

+------------------+-------+-------+-------+-------+-------+-------+
|                  | **1   | **1   | **2   | **2   | **2   | **200 |
|                  | 998** | 999** | 000** | 001** | 002** | 3\*** |
+------------------+-------+-------+-------+-------+-------+-------+
| GDP Growth (%)   | 0.1   | 0.9   | 4.0   | 1.5   | 1.5   | 0.5   |
+------------------+-------+-------+-------+-------+-------+-------+
| Inflation (%)    | 1.7   | 8.9   | 6.0   | 7.7   | 12.5  | 9.6   |
|                  |       |       |       |       |       |       |
| (IPCA/IBGE))     |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| Average Exchange | 1.16  | 1.81  | 1.83  | 2.35  | 2.96  | 3.10  |
| Rate (R\$/US\$)  |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| Total Exports    | 51.1  | 48.1  | 55.0  | 58.2  | 59.6  | 73.1  |
|                  |       |       |       |       |       |       |
| (US\$ billion)   |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| Total Imports    | 57.5  | 49.2  | 55.7  | 55.5  | 55.3  | 48.2  |
|                  |       |       |       |       |       |       |
| (US\$ billion)   |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+

Source:

-   Brazilian Ministry of Development, Industry and Commerce
    (MDIC)/Secretariat of Foreign Trade (SECEX) trade databases
    (1998-2002)

-   Brazilian Institute of Geography and Statistics (IBGE) (1998-2002)

-   Brazilian Central Bank trade data

-   Current trend analysis

\* Projections for 2003 are taken from the Central Bank of Brazil (FIPE)

# 

# Wheat

## Wheat PS&D

  --------------------- ----------- ------------- ----------- -------------- ----------- -------------- ---------
  **Brazil**                                                                                            

  **Wheat**                                                                                             

                        **2002**    **Revised**   **2003**    **Estimate**   **2004**    **Forecast**   **UOM**

                        **USDA      **Post        **USDA      **Post         **USDA      **Post         ** **
                        Official    Estimate      Official    Estimate       Official    Estimate       
                        \[Old\]**   \[New\]**     \[Old\]**   \[New\]**      \[Old\]**   \[New\]**      

  **Market Year Begin**             10/2002                   10/2003                    10/2004        MM/YYYY

  **Area Harvested**    2043        2043          2470        2464           0           2400           (1000 HA)

  **Beginning Stocks**  900         796           656         550            756         801            (1000 MT)

  **Production**        2935        2925          5500        5851           0           4500           (1000 MT)

  **TOTAL Mkt. Yr.      6727        6700          5600        5300           0           5500           (1000 MT)
  Imports**                                                                                             

  **Jul-Jun Imports**   6631        6644          5600        5400           0           5500           (1000 MT)

  **Jul-Jun Import      656         656           0           400            0           500            (1000 MT)
  U.S.**                                                                                                

  **TOTAL SUPPLY**      10562       10421         11756       11701          756         10801          (1000 MT)

  **TOTAL Mkt. Yr.      6           6             1000        900            0           100            (1000 MT)
  Exports**                                                                                             

  **Jul-Jun Exports**   6           6             1000        900            0           100            (1000 MT)

  **Feed Dom.           450         450           350         200            0           400            (1000 MT)
  Consumption**                                                                                         

  **TOTAL Dom.          9900        9865          10000       10000          0           10200          (1000 MT)
  Consumption**                                                                                         

  **Ending Stocks**     656         550           756         801            0           501            (1000 MT)

  **TOTAL               10562       10421         11756       11701          0           10801          (1000 MT)
  DISTRIBUTION**                                                                                        
  --------------------- ----------- ------------- ----------- -------------- ----------- -------------- ---------

## 

## Production

Post raised 2003 wheat production to 5.9 million tons, which is also
Conab's estimate. Yield reports, market prices, and exports all confirm
that 2003 production was exceptional and therefore, Conab's figures
appear accurate. Yield increased 60 percent over 2002 and area nearly 21
percent. In addition, newer wheat varieties performed well and overall
crop quality was good, largely due to lack of sprouting, which is
common.

Post forecasts a fall in production in 2004/05 to 4.5 million tons and a
slight decrease in area to 2.4 million hectares. Production in Rio
Grande do Sul (RS) and, to a lesser extent, in Parana is expected to
drop as yields return to more normal levels (see chart below).
Nevertheless, yields are expected to be strong relative to the five-year
average, due to increased inputs and improved seed varieties. The 2003
crop experienced near ideal growing conditions and largely avoided
damaging frosts during grain filling and just prior to harvest. Though
more typical weather should lead to lower yields in 2004, the fall in
production will be somewhat mitigated by a second year of very large
planted area. Producer prices fell dramatically after the 2003 harvest
but recovered somewhat once exports began and domestic millers increased
purchase prices. These steady prices combined with very good yields,
lead to good profits (about 13 percent greater than 2002) for most
producers. The price after harvest in November 2003 averaged about
R\$416 per ton (U.S. \$143) compared to R\$569 per ton (U.S. \$158) in
November of 2002, which is about 15 percent less. However yields
increased year-to-year by more than 45 percent. Therefore, most
producers will likely return to wheat in hopes of similar profits.
Furthermore, soybean producers in the RS and Parana are likely to opt
for wheat as the follow-up winter crop since current dry planting
conditions favor wheat over corn due its need for less water.

+--------------------+--------+---------+--------+--------+---------+
| ####               |        |         |        |        |         |
| ## Wheat Area, Yie |        |         |        |        |         |
| ld, and Production |        |         |        |        |         |
+--------------------+--------+---------+--------+--------+---------+
|                    | 2      | 2001/02 | 2      | 2      | 20      |
|                    | 000/01 |         | 002/03 | 003/04 | 04/05\* |
+--------------------+--------+---------+--------+--------+---------+
| **Area** (million  | 1.47   | 1.72    | 2.04   | 2.46   | 2.40    |
| hectares)          |        |         |        |        |         |
+--------------------+--------+---------+--------+--------+---------+
| **Yield**          | 1.13   | 1.88    | 1.44   | 2.37   | 1.87    |
| (tons/hectare)     |        |         |        |        |         |
+--------------------+--------+---------+--------+--------+---------+
| **Production**     | 1.66   | 3.25    | 2.93   | 5.85   | 4.50    |
| (million tons)     |        |         |        |        |         |
+--------------------+--------+---------+--------+--------+---------+

\* Post Forecast

Wheat producers in Brazil are becoming more connected with international
markets. International spot prices and futures are watched closely to
determine the price of imported Argentine and U.S. supplies, which
compete with domestic supplies. In addition, markets are now being
watched to determine export potential, though exports are only likely
under unusual circumstances. Therefore, Brazilian producers are well
aware of the tight global stocks situation, the relatively small
Argentine harvest, and recent demand by China. Contacts in Southern
Brazil report that farmers in the region are very bullish on wheat and
these price-supporting factors are fueling producer's anticipation of
high prices and thus will sustain wheat area.

Over the long-term, the Brazilian government aims to reduce Brazil's
dependence on wheat imports, and increase self-sufficiency to as much as
80 percent. Industry representatives report that in order to reach this
production goal several measures are needed, including government
support, credit with lower interest rates, insurance, guaranteed prices,
and increased cooperation and funding by the input and milling
industries. However, despite the government's aggressive goal, it is
very doubtful that it can be achieved since Brazil's climate is simply
not conducive to wheat production. Fertilizer and agrochemical input
expenses are more than double those in the United States. In addition,
production areas in the south, where over 90 percent of Brazil's wheat
is produced, are often plagued by excessive rains during late crop
development. Therefore, sprouting is common and protein levels are
typically quite low. Furthermore, these rains and frosts during
development result in significant yield and quality losses. Meanwhile
neighboring Argentine enjoys a much more favorable climate for wheat
production and the country generally produces double to triple its
consumption needs. With such a large supply of higher quality wheat next
door, it is doubtful that Brazilian producers will consistently receive
price incentives sufficient to increase production on a scale envisioned
by the government.

## Trade

Post forecasts 2003/04 local marketing year (October/September) imports
at 5.3 million tons, which is about 1.4 million tons less than the
previous year, due to a large Brazilian crop in the fall of 2003.
However, Brazilian exports of wheat over the past several months have
meant that more imports will be needed than thought immediately after
harvest. Imports of U.S. wheat in 2003/04 are forecast at 400,000 tons.
U.S. imports for the first 6 months of the international marketing year
(July/June) were 350,000 tons and an additional 50,000 tons are possible
in May and June. In 2004/05 total marketing year imports are forecast at
5.5 million tons, which is 200,000 tons more than 2003/04. Slightly
greater imports will be needed due lower expected production but the
overall level of imports will be relatively low due to additional supply
from large carryin stocks and a reduction of exports of 800,000 tons.
Trade year U.S. imports are forecast at 500,000 tons as Northeastern
millers continue to demand U.S. HRW and SRW supplies.

The Post 2003/04 wheat import estimate includes around 300,000 tons of
pre-mix flour, which continues to arrive despite strong opposition from
Brazilian millers. Argentina taxes wheat and wheat flour exports at a
rate of 20 percent, while pre-mixes are subject to just a 5 percent tax.
Consequently, Argentine flour exporters add a dash (0.3 to 0.5 percent)
of salt to flour and export it as pre-mix. Brazilian imports of pre-mix
flour have soared from only 18,000 tons, grain equivalent, in 2001/02
(July/June) to 310,399 tons in 2002/03. At the same time, "real" flour
fell from 239,000 tons in 2001/02 to just 35,000 tons in 2002/03.

As these imports have continued flowing into Brazil, millers have grown
increasingly upset. Millers claim that Argentine flour is priced about
25 percent lower than domestic flour and competition with this cheap
"flour" is causing the overall price of wheat and flour to fall.

In November 2003, Brazil began exporting significant amounts of wheat
for the first time. Post forecasts 2003/04 exports at 900,000 tons with
nearly 395,000 tons shipped through January. The majority of the wheat
is being shipped to North Africa and Eastern Europe (see chart below).
The largest market, thus far, has been Morocco which is seeking cheap
medium quality milling wheat to satisfy demand that was filled by
Russia, Ukraine, and the EU last year. Brazil has long-been one of the
top wheat importing countries and therefore exports were very
unexpected. A unique set of conditions has allowed for the wheat
shipments and such conditions are not likely to be present in 2004/05.
Therefore, Post forecasts 2004/05 exports at only 100,000 tons. A review
of the conditions leading to exports this past year is warranted since
future sporadic shipments onto the global market are possible.

+-------------------------------+--------------------------------------+
| #                             |                                      |
| ##### Brazilian Wheat Exports |                                      |
+-------------------------------+--------------------------------------+
| Destination                   | 2003/04 (Oct to Jan)                 |
|                               |                                      |
|                               | 1000 tons                            |
+-------------------------------+--------------------------------------+
| Morocco                       | 140                                  |
+-------------------------------+--------------------------------------+
| Romania                       | 105                                  |
+-------------------------------+--------------------------------------+
| Bulgaria                      | 78                                   |
+-------------------------------+--------------------------------------+
| Spain                         | 29                                   |
+-------------------------------+--------------------------------------+
| Italy                         | 18                                   |
+-------------------------------+--------------------------------------+
| Yugoslavia                    | 16                                   |
+-------------------------------+--------------------------------------+
| Algeria                       | 8                                    |
+-------------------------------+--------------------------------------+
| Romania                       | 1                                    |
+-------------------------------+--------------------------------------+
| Portugal                      | 1                                    |
+-------------------------------+--------------------------------------+
| **Total**                     | **395**                              |
+-------------------------------+--------------------------------------+

A bumper crop in Southern Brazil forced prices down after harvest with
millers willing to pay only R\$380 per ton in some areas of RS, which
was R\$20 below the government minimum prices. Producers in the South
have a long history of animosity toward domestic millers who they
believe refuse to pay "fair market prices." Historically, producers have
been forced to sell domestically since transportation costs are high and
wheat quality is generally not considered high by international
standards. Domestic millers prefer to import wheat rather than use
domestic supplies because imported wheat (mainly Argentine) is
considered to have higher gluten content. Additionally, long repayment
periods and low international interest rates make imports attractive.
Therefore, many millers held off on buying the plentiful and low-priced
domestic supplies after harvest due to intentions to import Argentine
wheat. To make matters worse, storage at wheat harvest was in short
supply since producers were holding the record soybean crop longer than
normal and the very large winter corn crop competed for storage space.

After failed attempts to get millers to raise prices and the government
to support prices, cooperatives in RS and Parana turned to the global
market for help. Argentine supplies were tight and prices high with
several months before the Argentine harvest. Tight global supplies,
particularly of feed-quality wheat, meant international prices were
firm. Buyers in North Africa, and Western, and Eastern Europe began
buying from Brazil at around U.S. \$155 FOB. Subsequent sales were
executed at U.S. \$165 per ton and domestic millers, surprised by the
exports, raised purchase prices to above R\$400 per ton. Contacts report
that nearly all the wheat shipped to Eastern Europe and North Africa is
being used for bread production while some, but not all, of the wheat
sent to Western Europe is being used in feed rations.

Most of the wheat exported, approximately 80 percent, is from the state
of Rio Grande do Sul (RS). Wheat from this state is said to be very good
for cookie and cracker production but due to very high internal
transport costs, mills in the Southeast and Northeast cannot absorb the
large harvest. Transport from RS to the Northeast is estimated at US\$
45 per ton while transport to Western Europe is only minimally more
expensive. These high internal rates are, in part, due to high internal
taxes, vessel sizes, and a law that requires that only Brazilian flag
ships be used for shipments between Brazilian ports. Therefore, Post
estimates that around 700,000 tons of wheat from RS has been sold to
Italy, Germany, Ukraine, Egypt, Tunisia, and Morocco.

Brazil has been selling wheat in the past few months at just under or
even with Argentine prices on an FOB basis. Transport to Black Sea ports
is a bit less for Brazilian wheat (about \$70 per ton) and both sources
have been priced just under U.S. HRW and about even with SRW. French
wheat is priced about \$10 per ton over these sources. Originally many
industry contacts believed that over 1.0 million tons would be exported
to Eastern Europe and other destinations. However, that now appears
unlikely as soaring freight rates and competition for port facilities
from the soybean harvest are expected to slow exports. Furthermore,
competition from Argentine supplies is increasing.

Brazil's entrance in the global wheat market as an exporter is not
expected to be long-term. Even with a large crop in 2003, domestic
production will fill only about half of Brazilian consumption with the
rest filled through imports from Argentina, the United States, and
Canada. However, under the right conditions of a bumper crop, tight
Argentine supplies, and high international prices, exports are a
short-term option for producers in Southern Brazil and can't be ruled
out in the future. Nevertheless, in 2004/05 Argentine supplies are
likely to increase and Brazilian production decrease making large-scale
exports unlikely.

## Imports of U.S. Wheat

Currently the only two classes of U.S. wheat that are exported to Brazil
are HRW and SRW. Brazilian millers, particularly those in the Northeast,
use HRW in the production of bread flour and mix with Argentine or
domestic wheat. From the total of 656,000 tons of U.S. exports to Brazil
in trade year 2002/03, 75 percent were HRW. HRW has a very good
reputation among millers who report that its baking properties are
superior to domestic and Argentine supplies. End-users indicate that
flour between 10.5 to 12 percent protein is optimal.

Imports of SRW represent 25 percent of total imports of U.S. wheat. When
competitively priced, millers in the Northeast prefer SRW for use in the
production of flour for cookies and crackers. In fact, one mill in the
Northeast reported that in 2003, it used only SRW in the production of
cookies and crackers. However, it is more common for SRW to be mixed
with supplies from Rio Grande do Sul, which is also soft but of slightly
lower quality.

The government of Brazil currently allows the import of HRS but demand
among mills is lacking. Mills report that HRS prices are simply too high
given the price of Argentine and domestic supplies. Potential for the
import of HRS does exist but price, more than quality, currently drives
millers' import decisions given tight industry margins and low consumer
purchasing power. Nevertheless, HRS use in pasta production may allow
for some imports.

Currently Durum, Hard White Winter (HWW), and Soft White Winter (SWW)
are not imported due to phytosanitary restrictions. Post knows of only
one mill in Brazil that is equipped to handle Durum. Argentine semi-hard
and higher quality domestic supplies from Parana are used in pasta
production. As a result, pasta is of relatively low quality but
inexpensive. Millers and industry representatives indicate that
consumers are simply unwilling to pay more for high quality pasta that
could be produced with U.S. durum. However, one possibility could be
among the wealthier Italian immigrants that demand a high quality
product. Additionally, semolina from the U.S. is occasionally imported
and durum could be milled instead if demand for high-quality pasta
increases.

Traders and millers generally agree that of the three classes currently
not allowed into Brazil, HWW has the greatest market potential. Some
traders have been aggressive in relaying to millers the advantages of
HWW. As a result, many mills have expressed a desire to import this
variety as Brazilian consumers prefer very white bread and a common
complaint among bakers is that the flour provided by millers is too
dark. At-home consumers of flour also express a need for whiter flour
and millers are anxious to work with HWW since it is reported to yield
whiter flour and have approximately a 2 percent higher extraction rate
than domestic wheat supplies.

## U.S. Competition

U.S. market share in Brazil in 2002/03 was 10 percent, compared to an
average of 1 percent the previous five years. Primary U.S. competitors
in the Brazilian market are Argentina, Canada, and Eastern Europe.
Argentine wheat imported from Bahia Blanca is considered to be
semi-hard, of average to good quality, and used to mix with Brazilian
supplies for stability. Argentine upriver supplies are generally (though
not this year) lower quality and considered to be soft and generally
priced U.S. \$10 per ton lower than Bahia Blanca supplies. Argentina
accounted for 78 percent of Brazilian imports in 2002/03, which appears
high but is actually significantly below the previous four-year average
of 96 percent. As a Mercosul member, Argentina enjoys preferential
tariff rates and lower freight to South and Southeastern Brazil.
However, U.S. wheat competes well in the Northeast were Argentina has
little to no freight advantage and U.S. supplies are exempt from the
Merchant Marine tax. Northeastern millers and traders relay that from
May to November, during and after the U.S. harvest and before the
Argentine harvest, HRW is very competitively priced to mills in
Fortaleza. Due to the higher quality of HRW, traders indicate that they
are willing to pay a premium of about \$5 per ton over Argentine
supplies.

In the South and Southeast where Brazil's population is concentrated,
U.S. wheat faces more obstacles. Along with high freight rates and
tariffs, traders have an economic incentive to buy Argentine wheat. Due
to the transparency of U.S. prices, traders report that margins on U.S.
imports are generally only \$1 or less per ton. However, Argentine-based
trades can produce \$3 to \$4 per ton margins. For these reasons, U.S.
wheat is rarely imported to the South or Southeast of Brazil. However,
some millers report growing dissatisfaction with Argentine supplies that
have more of the European Baguette variety. Argentine producers are said
to prefer Baguette variety because of high yields and producers
apparently receive no premium for the non-Baguette varieties despite
their better baking qualities. As a result of Brazilian dissatisfaction
with these supplies and due to high Argentine prices in 2003, the
southern state of Parana imported 30,000 tons of HRW for the first time.
Nevertheless, dissatisfaction with Argentine wheat is not universal and
as long as Argentina enjoys a preferential tariff, it appears unlikely
that U.S. wheat will gain a significant hold in the South and Southeast.

Canada's market share has been in decline since 1997/98 when exports
were nearly 900,000 tons. Since that time, Brazil's economic struggles
have forced millers to turn to less-expensive sources of wheat.
Additionally, U.S. wheat was shut out of the Brazilian market so Canada
was the only source for high-quality supplies. Importers now describe
Canadian imports, nearly all of which are hard red spring wheat, as
"spice" wheat that is blended in very small quantities to improve flour
quality. Millers now appear to prefer U.S. HRW, which is less expensive
and enjoys a small freight advantage to the Northeast of Brazil compared
to Canada's shipments out of the St. Lawrence. It is difficult to
forecast Canadian exports since the Canadian Wheat Board operates under
a closed system where prices are not transparent and
price-discounting/dumping is common. However, with international prices
high, it is doubtful that the Canadian Wheat Board will focus on Brazil
where HRW is very competitive.

+----------+--------+--------+--------+-------+-------+-------+-------+
| Exports  |        |        |        |       |       |       |       |
| (1000    |        |        |        |       |       |       |       |
| tons)    |        |        |        |       |       |       |       |
| and      |        |        |        |       |       |       |       |
| Export   |        |        |        |       |       |       |       |
| Shares   |        |        |        |       |       |       |       |
| (%) of   |        |        |        |       |       |       |       |
| the      |        |        |        |       |       |       |       |
| B        |        |        |        |       |       |       |       |
| razilian |        |        |        |       |       |       |       |
| Wheat    |        |        |        |       |       |       |       |
| and      |        |        |        |       |       |       |       |
| Product  |        |        |        |       |       |       |       |
| Market - |        |        |        |       |       |       |       |
| 1997/98  |        |        |        |       |       |       |       |
| -        |        |        |        |       |       |       |       |
| -2003/04 |        |        |        |       |       |       |       |
| (Ju      |        |        |        |       |       |       |       |
| ly/June) |        |        |        |       |       |       |       |
+----------+--------+--------+--------+-------+-------+-------+-------+
|          | 97/98  | 98/99  | 99/00  | 00/01 | 01/02 | 02/03 | 2003  |
|          |        |        |        |       |       |       | /04\* |
+----------+--------+--------+--------+-------+-------+-------+-------+
| A        | 4,496  | 7049   | 7056   | 7178  | 6934  | 5186  | 5000  |
| rgentina |        |        |        |       |       |       |       |
|          | \(79\) | \(96\) | \(96\) | \     | \     | \     | \     |
| (        |        |        |        | (96\) | (96\) | (78\) | (91\) |
| Includes |        |        |        |       |       |       |       |
| Pre-mix) |        |        |        |       |       |       |       |
+----------+--------+--------+--------+-------+-------+-------+-------+
| Canada   | 871    | 277    | 158    | 123   | 0     | 116   | 100   |
|          |        |        |        |       |       |       |       |
|          | \(15\) | \(4\)  | \(2\)  | \(2\) | \(0\) | \(2\) | \(2\) |
+----------+--------+--------+--------+-------+-------+-------+-------+
| Others   | 317    | 45     | 84     | 99    | 69    | 673   | 50    |
|          |        |        |        |       |       |       |       |
|          | \(6\)  | \(0\)  | \(1\)  | \(1\) | \(1\) | \     | \(1\) |
|          |        |        |        |       |       | (10\) |       |
+----------+--------+--------+--------+-------+-------+-------+-------+
| United   | 1      | 16     | 79     | 53    | 199   | 656   | 400   |
| States   |        |        |        |       |       | (10)  |       |
|          | \(0\)  | \(0\)  | \(1\)  | \(1\) | \(3\) |       | \(7\) |
+----------+--------+--------+--------+-------+-------+-------+-------+
| Total    | 5685   | 7387   | 7298   | 7453  | 7202  | 6631  | 5500  |
+----------+--------+--------+--------+-------+-------+-------+-------+

Source: Brazilian Ministry of Agriculture, U.S. Customs Service, and
Post

\*Post forecasts

Note: Argentine export figures vary widely depending on the source with
Brazilian customs, Argentine customs, and the Argentine Department of
Agriculture all diverging. Based on these three sources, the table above
contains Post's estimate of Brazilian imports from Argentine and
includes significant amounts of pre-mix flour in the past three years.

U.S. wheat also competes, to some extent, with domestic supplies.
Sources report that regardless of domestic supply and prices, some
higher-quality imported wheat is always needed so that it can be mixed
with local wheat to produce minimum quality flour. U.S. exports face
several duties that make it more expensive to domestic millers such as
the Merchant Marine tax in the south and the Common External for
non-Mercosul countries. U.S. exporters will also now be faced with a
higher CONFINS and PIS tax. Funds generated through the COFINS tax go
toward social programs. These two taxes had totaled 3.25 percent of the
imported what value but due to a new law the rates have increased to
9.25 percent. The tax is to be collected at customs when the wheat
imports are registered. It is not yet clear if Argentina will have to
pay these taxes. Brazilian mills belonging to cooperatives can obtain a
70 percent refund of the tax when wheat is sourced domestically but no
refund is available for imported wheat thereby increasing the
comparative price on such wheat by 6 percent. Millers, particularly
those in the Northeast where imports are a necessity due to lack of
regional production, are very upset by the measure and are pressing the
government to exempt wheat imports from the tax. They argue that the
underdeveloped Northeast is being punished since they don't always have
the option to buy cheap domestic wheat, like millers in the south.

Though it is expensive to transport domestic supplies to the Northeast,
U.S. wheat is facing more competition from domestic supplies in the
region this year. However, freight from RS to Fortaleza has been high
due to a shortage of vessels. Brazilian law requires that freight
shipped between Brazilian ports be carried on Brazilian flag ships but
such ships are in short supply. The domestic wheat industry has also
pressed the government to suspend this law.

## Consumption

Total wheat consumption in 2003/04 (Oct/Sep) is forecast at 10.0 million
tons. Feed consumption is forecast at only 200,000 tons despite the very
large crop. The 2003 crop was very good quality with little damaged by
rains and frosts. Additionally, corn and sorghum supplies are plentiful
and cheap, so with wheat priced strong there is little incentive to feed
wheat to livestock. Food, Seed, and Industrial use in 2003/04 is
forecast at only 9.7 million tons (see chart below). Human consumption
of wheat in 2003/04 is expected to be limited by poor economic growth
and low consumer purchasing power.

2004/05 total use is forecast to increase 200,000 tons from 2003/04 to
10.2 million tons with feed and food consumption expected to rise
100,000 tons each. A more typical crop in 2004/05 would mean a return to
more feed wheat consumption and industry contacts estimate that wheat
used for feed varies from 200,000 tons to 500,000 tons each year. Food,
seed, and industrial use are forecast to rise by only 100 tons due to
somewhat improved economic growth. Post believes that due to pressure
from the milling industry, by October 2004 the government could limit
imports of pre-mix flour from Argentina. However, the domestic milling
industry is likely to only gain some of the limited additional demand
since regular flour imports are expected to rebound to levels observed
prior to the beginning of pre-mix imports.

+---------------------------------+-----------------+-----------------+
| **Post Forecast 2003/04 and     |                 |                 |
| 2004/05 Domestic Consumption**  |                 |                 |
|                                 |                 |                 |
| (Thousand metric tons)          |                 |                 |
+---------------------------------+-----------------+-----------------+
|                                 | 2003/04         | 2004/05         |
+---------------------------------+-----------------+-----------------+
| Domestic Milling                | 9,100           | 9,300           |
+---------------------------------+-----------------+-----------------+
| Imported Flour/Pre-Mix          | 300             | 200             |
+---------------------------------+-----------------+-----------------+
| **Total Human Consumption**     | **9400**        | **9500**        |
+---------------------------------+-----------------+-----------------+
| Seed                            | 225             | 235             |
+---------------------------------+-----------------+-----------------+
| Industrial                      | 75              | 65              |
+---------------------------------+-----------------+-----------------+
| **Total Food, Seed, and         | **9700**        | **9800**        |
| Industrial**                    |                 |                 |
+---------------------------------+-----------------+-----------------+
| Feed                            | 200             | 300             |
+---------------------------------+-----------------+-----------------+
| Residual/Waste                  | 100             | 100             |
+---------------------------------+-----------------+-----------------+
| **Total Feed and                | **300**         | **400**         |
| Residual/Waste**                |                 |                 |
+---------------------------------+-----------------+-----------------+
| Total Domestic Consumption      | 10,000          | 10,200          |
+---------------------------------+-----------------+-----------------+

Note: Post uses ending stocks as a residual in balancing supply and
demand rather than consumption since consumption information obtained
from the domestic milling industry is more precise than stocks
estimates. Feed, Seed, and Industrial use are less precise than domestic
milling but information provided by trade contacts and private analysts
allow for reasonable rounded forecasts.

Wheat competes with rice and manioc for a share of the Brazilian diet.
Per capita consumption of bread in Brazil is very low at roughly 28 kg
per person compared with 83 kg per person in Argentina. Bakery products
make up 50 percent of consumption while pasta comprises 19 percent and
confectionery products 16 percent. At home flour use represents 12
percent of consumption and industrial bakeries comprise the remaining 3
percent.

## Ending Stocks

Conab forecasts ending stocks to rise to 874,000 by the end of marketing
year 2003/04, which is nearly 350,000 tons higher than the previous
year. The increase in ending stocks is due to the large harvest and weak
domestic consumption. Post forecasts 2003/04 ending stocks at 801,000
tons and 2004/05 ending stocks at 501,000 tons as a stocks drawdown is
likely due to a smaller domestic crop. Producers are building more
on-farm storage but soybeans are given priority for storage space.

# Corn

## Corn PS&D

  --------------------- ----------- ------------- ----------- -------------- ----------- -------------- ---------
  **Brazil**                                                                                            

  **Corn**                                                                                              

                        **2002**    **Revised**   **2003**    **Estimate**   **2004**    **Forecast**   **UOM**

                        **USDA      **Post        **USDA      **Post         **USDA      **Post         ** **
                        Official    Estimate      Official    Estimate       Official    Estimate       
                        \[Old\]**   \[New\]**     \[Old\]**   \[New\]**      \[Old\]**   \[New\]**      

  **Market Year Begin**             03/2003                   03/2004                    03/2005        MM/YYYY

  **Area Harvested**    12919       12900         12900       12600          0           13000          (1000 HA)

  **Beginning Stocks**  1020        2260          4370        5440           3270        4590           (1000 MT)

  **Production**        45000       44500         42000       41500          0           43500          (1000 MT)

  **TOTAL Mkt. Yr.      350         800           400         450            0           400            (1000 MT)
  Imports**                                                                                             

  **Oct-Sep Imports**   521         520           400         600            0           500            (1000 MT)

  **Oct-Sep Import      8           8             0           0              0           0              (1000 MT)
  U.S.**                                                                                                

  **TOTAL SUPPLY**      46370       47560         46770       47390          3270        48490          (1000 MT)

  **TOTAL Mkt. Yr.      5000        4620          4500        4000           0           4500           (1000 MT)
  Exports**                                                                                             

  **Oct-Sep Exports**   3181        3200          5500        5500           0           3500           (1000 MT)

  **Feed Dom.           32500       34000         34000       35000          0           33800          (1000 MT)
  Consumption**                                                                                         

  **TOTAL Dom.          37000       37500         39000       38800          0           40000          (1000 MT)
  Consumption**                                                                                         

  **Ending Stocks**     4370        5440          3270        4590           0           3990           (1000 MT)

  **TOTAL               46370       47560         46770       47390          0           48490          (1000 MT)
  DISTRIBUTION**                                                                                        
  --------------------- ----------- ------------- ----------- -------------- ----------- -------------- ---------

## Production

Corn production in 2003/04 is forecast up from the previous post
forecast to 41.5 million tons on 12.6 million hectares with a yield of
3.3 tons per hectare. However, 2003/04 production is forecast to be 3.0
million tons less than the previous year due lower planted area and less
favorable growing conditions. Less production in RS, Parana, and the
Center-West is largely responsible for the fall in the summer crop as
low soil moisture at planting combined with strong soybean and rice
prices encouraged some movement to these alternative crops, especially
in Mato Grosso. The soy-corn price spread was particularly large at
planting and increasing input costs also favored rice and soybeans,
which require less inputs than corn. A severe drought over the past few
months in the south has severely hurt corn that was planted late.
However, most corn was planted early and this has been largely
unaffected by the drought.

A smaller winter crop is also expected in 2003/04 with post forecasting
a winter crop of just 10 million tons. Conab forecasts the total 2003/04
crop at 46.3 million tons with winter corn production nearly identical
(12.6 million tons) to the previous year. The Brazilian media is also
very optimistic regarding the winter crop. However, post believes that
another bumper winter crop is unlikely given that rains have delayed the
harvest of soybeans in Mato Grosso and delayed the planting of a
follow-up corn crop. Planting has also been delayed in Parana due to
lack of soil moisture and last year's late planting of short-season
soybeans means that some producers will move away from a winter corn
crop. Further dampening the outlook for the second corn crop are very
low producer prices in some regions, lower year-to-year seed purchases
for the winter crop, and an expected return to more normal weather
following ideal conditions for last year's winter corn crop.

Options contacts are used by the government to guarantee minimum prices
and provide security to producers. The government assures purchase of
corn at a pre-determined price if the market price at contract
expiration is lower than that forecast in the contract. The difference
in value is a subsidy paid by the government. However, it is reported
that this year no government resources are available for such a subsidy.
Last year the options contracts greatly contributed to the increased
planted area for winter corn. However, this year producers will not
enjoy the same security, which should contribute to the fall in winter
corn crop area.

Winter corn (Safrinha) area, which is planted in January through April,
will also be impacted by increased sorghum area given large sorghum
exports in 2003 and strong prices. Nevertheless, a shortage of sorghum
seeds will limit sorghum planted area. Wheat area is forecast to be as
large as last year and thus will also limit winter corn production. The
dryness over the past few months in the South is said to be encouraging
a move away from corn to wheat which requires much less soil moisture.
Finally input costs are about 25 percent greater than last year and,
therefore, as was the case with the summer crop, it is expected that
less input-intensive crops will substitute for some corn area.

Post feels that Conab's historical (especially 2002/03) production
figures are slightly overestimated which may be leading to an overly
optimistic forecast for 2003/04. While Post agrees that the harvest in
2002/03 was large, corn prices (see chart below) and the level of
exports do not validate crops as large as Conab estimates.

  -------------------------- -------------- -------------- --------------
  Season Average Corn Price                                

                             2001           2002           2003

  Sack in Local Currency     9.73           16.43          18.36
  (Reis)                                                   

  Sack in U.S. Dollars       4.14           5.55           5.92
  -------------------------- -------------- -------------- --------------

Post forecasts production in 2004/05 at 43.5 million tons on 13.0
million hectares. Over the past few years producer profits for corn have
been healthy. Therefore, the 2004/05 crop is expected to be large as
producers again seek healthy returns. At this point it appears that the
primary factor that could significantly lower corn area would be a
dramatic fall in prices before the summer crop is planted in September
but this appears unlikely. Though corn prices in early 2004 have eased,
an increasing export pace, a smaller 2003/04 winter crop, and strong
demand from the poultry industry are expected to support prices through
the summer crop planting in the fourth quarter of 2004.

+--------------------------+-------+-----+------+-------+------+-----+
| ######                   |       |     |      |       |      |     |
| Cost of Production for C |       |     |      |       |      |     |
| orn and Competing Crops  |       |     |      |       |      |     |
|                          |       |     |      |       |      |     |
| **2003 Cost in \$Reis**  |       |     |      |       |      |     |
+--------------------------+-------+-----+------+-------+------+-----+
|                          | So    | C   | Co   | Soy   | W    | Ric |
|                          | rghum | orn | tton | beans | heat | e\* |
+--------------------------+-------+-----+------+-------+------+-----+
| Mechanical Operations    | 166   | 261 | 889  | 241   | 240  | 353 |
+--------------------------+-------+-----+------+-------+------+-----+
| Inputs                   | 240   | 810 | 1    | 567   | 503  | 438 |
|                          |       |     | ,692 |       |      |     |
+--------------------------+-------+-----+------+-------+------+-----+
| Administration           | 120   | 78  | 158  | 85    | 76   | 126 |
+--------------------------+-------+-----+------+-------+------+-----+
| Post-Harvest Costs       | 106   | 155 | 132  | 68    | 44   | 64  |
+--------------------------+-------+-----+------+-------+------+-----+
| Total Cost per Hectare   | 632   | 1,  | 2    | 961   | 860  | 981 |
|                          |       | 304 | ,872 |       |      |     |
+--------------------------+-------+-----+------+-------+------+-----+
| Revenue per Hectare      | 1,005 | 2,  | 4    | 1,486 | 1    | 1,  |
|                          |       | 217 | ,674 |       | ,240 | 182 |
+--------------------------+-------+-----+------+-------+------+-----+
| Profit per Hectare       | 373   | 913 | 1    | 525   | 379  | 201 |
|                          |       |     | ,802 |       |      |     |
+--------------------------+-------+-----+------+-------+------+-----+
| **Sales Margin**         | **    | *   | **3  | **    | **2  | *   |
|                          | 37%** | *41 | 9%** | 35%** | 9%** | *17 |
|                          |       | %** |      |       |      | %** |
+--------------------------+-------+-----+------+-------+------+-----+
| Prior Year's Sales       | 14%   | 19% | 7%   | 22%   | 16%  | -   |
| Margin                   |       |     |      |       |      | 10% |
+--------------------------+-------+-----+------+-------+------+-----+

Source: FNP Consultoria and Agroinformativos

\* Non-irrigated

\- Land values and rents not included in costs

Sorghum, rice, and cotton in Goias, corn in Mato Grosso, soybeans in
Mato Grosso do Sul, and wheat in Rio Grande do Sul.

Corn production in Brazil is concentrated in the South, Southeast, and
Center-West with these regions accounting for much of Brazil's
production. There are two corn crops in Brazil. The main summer crop is
planted in September through November and the second crop, or
\"safrinha\" winter crop is planted from late January though March, and
competes for area with other winter crops such as wheat and sorghum. The
importance of the safrinha crop is increasing as production has more
than doubled from 1999/00 to 2002/03 and now constitutes about 25
percent of the total production. This is largely due to greater
production in the new cropland of the Center-West region where corn is
used as a second crop following soybeans. Larger safrinha production has
meant less seasonality of prices and greater exports. However, Brazil's
increasing dependence on safrinha corn concerns the pork and poultry
sectors, which depend on domestic corn production. The winter crop
frequently suffers considerable weather damage, such as drought during
planting, frosts during maturation, and heavy rains at harvest time.
Furthermore, the pork and poultry sectors are reluctant to use imported
corn, because they promote "GMO-free" product to the European market.

Long-term projections among industry analysts in Brazil are robust for
corn production. Continued increases in new soy area will benefit corn.
As noted above, corn is commonly used in rotations and expansion of area
is seen in the Center-West region where soy and corn area have grown
hand-in-hand to where the region is now the second largest corn
producer. Conversion of traditional pasture area into a corn-pasture
rotation will also boost national planted area. However, the most
significant factor pushing corn production will be continued strong
demand from the booming poultry and swine industries. As long as exports
from these sectors continue to surge upward, demand and thus production
of corn will continue to rise. Additionally, Brazilian corn production
has high potential for yield gains as yields are currently about half
that of Argentina and a little more than a third that of the United
States.

Government policy will be key in stimulating production. In 2002, the
government's initiative to offer options contracts provided producers
with some liquidity that had been lacking. In early 2003 the government
provided options contracts at export prices in hopes of building stocks
to avoid a domestic shortage. Through these contracts the government
procured nearly 2 million tons of corn, thereby supporting prices and
decreasing exports. The result was that with supported prices, producers
greatly increased winter corn area. However, currently it appears the
government may be focusing more on guaranteed minimum prices, which are
generally below market prices and less effective in providing the
security necessary to encourage corn planting.

## Trade

Corn exports are forecast at 4.6 million tons the marketing year ending
in February 2004. Major destinations for the first 11 months (see chart
above) include the EU, South Korea, and Iran. Demand from the EU (mostly
Spain) has been very strong due to internal shortages from the small
domestic crop. Competitively priced Brazilian corn has been very
attractive as it is preferred over Argentine since Brazilian corn is GMO
free. Imports by Italy were unprecedented as they typically source only
European corn to fill domestic needs but bought Brazilian corn as an
alterative non GMO source. A shortage of corn in Eastern Europe also
lead to increased purchases of Brazilian corn while food corn markets in
Japan and South Korea held firm. Iranian imports from Brazil were strong
as Argentina was largely out of the market allowing Brazil to fill
imports needs not met by China, the top exporter to Iran last year. A
similar situation took place in South Korea where Brazil replaced
Argentine corn but trailed China.

Brazilian corn imports are estimated at 800,000 tons for the marketing
year with the majority coming from neighboring Paraguay. This is the
largest import level since 1999/2000 and somewhat unexpected given the
very large Brazilian Harvest. Imports occurred due to a large Paraguayan
winter crop, which benefited, like Southern Brazil, from near ideal
growing conditions last year. This large supply coupled with strong
demand from the pork and poultry industry in the nearby Southern
Brazilian states of Santa Catarina and Parana, allowed for over 700,000
tons of Paraguayan imports into the area. Though production in the
southern Brazil was very large, imports from Paraguay were still
possible due to very low Paraguayan prices and duty-fee access into
Brazil. Normally, Brazil's Northeast accounts for most of the corn
imports but only totaled 20,000 tons in the marketing year. Post
forecasts 2003/04 marketing year imports at 450,000 tons and 2004/05
imports at 400,000 tons.

+---------------------+-----------------------+-----------------------+
| **Brazilian Corn    |                       |                       |
| Exports by          |                       |                       |
| Destination**       |                       |                       |
|                     |                       |                       |
| (1000 tons)         |                       |                       |
+---------------------+-----------------------+-----------------------+
| Destination         | March 2002/Feb 2003   | March 2003/Jan 2004   |
|                     |                       |                       |
|                     |                       | (11 months)           |
+---------------------+-----------------------+-----------------------+
| Spain               | 230                   | 997                   |
+---------------------+-----------------------+-----------------------+
| South Korea         | 472                   | 793                   |
+---------------------+-----------------------+-----------------------+
| Iran                | 308                   | 431                   |
+---------------------+-----------------------+-----------------------+
| Japan               | 205                   | 262                   |
+---------------------+-----------------------+-----------------------+
| Israel              | 0                     | 160                   |
+---------------------+-----------------------+-----------------------+
| Morocco             | 178                   | 147                   |
+---------------------+-----------------------+-----------------------+
| Belgium             | 0                     | 128                   |
+---------------------+-----------------------+-----------------------+
| Saudi Arabia        | 78                    | 126                   |
+---------------------+-----------------------+-----------------------+
| Portugal            | 0                     | 142                   |
+---------------------+-----------------------+-----------------------+
| Italy               | 0                     | 114                   |
+---------------------+-----------------------+-----------------------+
| Slovenia            | 0                     | 108                   |
+---------------------+-----------------------+-----------------------+
| Poland              | 0                     | 92                    |
+---------------------+-----------------------+-----------------------+
| Holland             | 0                     | 68                    |
+---------------------+-----------------------+-----------------------+
| Chile               | 75                    | 40                    |
+---------------------+-----------------------+-----------------------+
| Algeria             | 72                    | 18                    |
+---------------------+-----------------------+-----------------------+
| South Africa        | 54                    | 0                     |
+---------------------+-----------------------+-----------------------+
| Mozambique          | 246                   | 0                     |
+---------------------+-----------------------+-----------------------+
| Others              | 136                   | 375                   |
+---------------------+-----------------------+-----------------------+
| **Total**           | **2,054**             | **4,001**             |
+---------------------+-----------------------+-----------------------+

Corn exports in the 2003/04 marketing year (beginning March 2004) are
forecast at 4.0 million tons which is 600,000 ton less than the estimate
for the prior year. Exports should benefit from tight global stocks
supporting prices as well as less export competition from China in
markets such as South Korea and Iran. Nevertheless demand will likely
fall in Asian markets impacted by Avian Influenza, which should lower
demand for corn used in feed rations. Additionally, The United States
and Argentina are likely to increase competition in these and other
markets. Demand during the second half of the year should also be lower
from the EU as production recovers from last year's dismal crop.
Brazilian domestic demand for corn from the pork and poultry industries
will limit exportable supply which will also be diminished by a smaller
crop that is forecast down 3.0 million tons lower than last year.

International trade year 2003/04 (Oct/Sept) exports are forecast at 5.5
million tons, which is 2.3 million tons greater than the previous year.
The massive winter crop and resulting competitive prices have spurred
exports for the first 7 months of the year. Based on shipments and
vessel lineups, post forecasts that from October 2003 to April 2004
exports will total 3.6 million tons. Demand from the EU has been strong
and should continue through the EU harvest. Very large Brazilian stocks
and the need to make room for soybeans will allow for large exports in
March and part of April but the large soybean crop and limited storage
at ports will likely constrain corn exports for several months beginning
in late April. Furthermore, prices should strengthen with prospects for
a smaller winter crop thus making exports less competitive. Sources
indicate that very few export contracts have been signed recently and
once shipments in the pipeline are gone, exports should fall
dramatically. The international trade year, as opposed to the marketing
year, should not be impacted greatly by the smaller winter crop, which
will mean less exportable supply.

Exports in marketing year 2004/05 are forecast 4.5 million tons due to
expected strong production and a possible domestic stocks drawn-down if
global conditions (prices) are high. This export forecast assumes that
by the start of the marketing year (March 2005) competition from China
will decrease and freight rates will ease somewhat. However the 2004/05
forecast is limited by strong expected domestic demand growth for corn,
which should outpace production growth and thereby limit exportable
supply.

In 2002/03 Brazil was the world's 4^th^ largest corn exporter for the
4^th^ consecutive year. Prior to 2000/01 exports were only very minimal,
reaching a maximum of just 460,000 tons in 1996/97. Brazilian exports
began in earnest in 2000/01 due to a massive crop in significant excess
on domestic needs. As a result, exports soared above 6 million tons and
since that time have remained above 3 million tons each year.
Consequently, global importers have become accustomed to Brazilian corn
and even pay a premium of around \$5 per ton since it is GMO free.
Exports have increased producer liquidity and supported domestic prices
over the past four years. Previous to 2000/01, corn prices were based
exclusively on internal demand and government intervention. After
exports began in 2001, the soybean meal/corn price spread narrowed and
today internal prices are less volatile than in the past. However, corn
still trails soybeans in terms of liquidity and corn prices are less
correlated to international prices than soybeans.

## Consumption

Total consumption in 2003/04 (corresponding to 2004 in the table below)
is forecast at 38.8 million tons. Post forecasts an increase in
industrialized corn rations of nearly 5 percent in 2003/04 from the
previous year and an increase of 6.5 percent in 2004/05. These increases
are primarily due to greater demand from the poultry industry as exports
are expected to increase significantly due, in part, to less competition
from Asian exporters impacted by diseases in their poultry populations.
Poultry is the largest user of industrialized feed rations at just over
50 percent and Post forecasts that calendar year 2004 poultry production
will increase more than 5 percent over 2003 production, mainly due to
exports which are about 25 percent that of domestic consumption. The
table below shows poultry consumption of corn growing slightly less than
the rate of growth for poultry production (more than 5 percent) due to
the fact that use of sorghum in industrialized rations is increasing and
substituting for some corn.

+------------------+---------+---------+--------+----------+----------+
| #                |         |         |        |          |          |
| ##### Brazilian  |         |         |        |          |          |
| Corn Consumption |         |         |        |          |          |
+------------------+---------+---------+--------+----------+----------+
| **Consumption    | *       | *       | **     | **       | **       |
| base**           | *2001** | *2002** | 2003** | 2004\*** | 2005\*** |
+------------------+---------+---------+--------+----------+----------+
| Industrialized   | 23.958  | 25.379  | 26.68  | 27.95    | 29.75    |
| Rations          |         |         |        |          |          |
+------------------+---------+---------+--------+----------+----------+
| Broilers         | 11.94   | 12.70   | 13.40  | 14.00    | 15.00    |
+------------------+---------+---------+--------+----------+----------+
| Hens             | 2.22    | 2.29    | 2.34   | 2.45     | 2.60     |
+------------------+---------+---------+--------+----------+----------+
| Hogs             | 7.89    | 8.18    | 8.51   | 9.00     | 9.50     |
+------------------+---------+---------+--------+----------+----------+
| Cattle           | 0.60    | 0.78    | 0.86   | 0.90     | 0.95     |
+------------------+---------+---------+--------+----------+----------+
| Other Animals    | 1.28    | 1.40    | 1.50   | 1.60     | 1.70     |
+------------------+---------+---------+--------+----------+----------+
| On Farm Rations  | 5.53    | 3.87    | 4.06   | 4.00     | 4.05     |
+------------------+---------+---------+--------+----------+----------+
| Human            | 5.67    | 5.75    | 5.75   | 5.85     | 6.20     |
| Consumption      |         |         |        |          |          |
+------------------+---------+---------+--------+----------+----------+
| Fresh and        | 1.48    | 1.50    | 1.50   | 1.50     | 1.55     |
| On-farm          |         |         |        |          |          |
+------------------+---------+---------+--------+----------+----------+
| Dry Milling      | 1.45    | 1.55    | 1.55   | 1.60     | 1.75     |
+------------------+---------+---------+--------+----------+----------+
| Wet Milling      | 1.35    | 1.35    | 1.35   | 1.40     | 1.50     |
+------------------+---------+---------+--------+----------+----------+
| Small Mills      | 1.40    | 1.35    | 1.35   | 1.35     | 1.40     |
+------------------+---------+---------+--------+----------+----------+
| Loses and Seeds  | 1.0     | 1.0     | 1.0    | 1.0      | 1.0      |
+------------------+---------+---------+--------+----------+----------+
| **Total**        | **      | *       | **3    | *        | *        |
|                  | 36.23** | *36.0** | 7.50** | *38.80** | *40.00** |
+------------------+---------+---------+--------+----------+----------+

Sources: SindiRacoes, Abimilho, and Post

\* Post Forecasts

-   Based on a Calendar year.

-   Note: the 2004 table year corresponds to the 2003/04 PS&D table year
    (March/Feb) since the majority of the year fall in 2004.

Post forecasts 2004/05 consumption at 40.0 million tons due mainly to
continued strong demand for industrialized rations which are expected to
grow at 7 percent due to demand from the poultry and pork sectors. Human
consumption in 2004/05 is expected to increase due to a small boost from
the "Zero Hunger" program, though rice should be the main beneficiary of
the program. Use of corn in beer production and pet foods is also
increasing and driving consumption. The Brazilian press and other
sources often understate human consumption of corn because they fail to
include corn that is consumed in farm households and fresh corn
consumption.

Human corn consumption per capita is very low in Brazil and less than 30
percent that of Mexico. The Brazilian Association of the Corn Milling
Industry (Abimilho, in Portuguese) is seeking to increase per capita
consumption by 20 percent through its "Corn is Better" campaign. Through
an advertising campaign and school education, Abimilho is promoting the
health benefits of consuming corn. Post does not foresee such a large
increase in consumption given the traditional level rice and wheat
consumption, but some increase is likely.

## Ending Stocks

Ending stocks for 2002/03 are estimated at 5.4 million tons due to the
record crop. Conab forecasts ending stocks at 6.0 million tons, which
seems to be accepted by many private analysts and contacts in Brazil.
However, Conab's marketing year ends in January while Post and
USDA/Washington use a marketing year ending in February. Taking into
account one month of exports and internal consumption leaves February
ending stocks at 5.4 million tons. Nevertheless, Post considers ending
stocks forecasts to be less reliable than consumption forecasts where
more private industry information is reliable.

# Rice

## Rice PS&D

  --------------------- ----------- ------------- ----------- -------------- ----------- -------------- ---------
  **Brazil**                                                                                            

  **Rice, Milled**                                                                                      

                        **2002**    **Revised**   **2003**    **Estimate**   **2004**    **Forecast**   **UOM**

                        **USDA      **Post        **USDA      **Post         **USDA      **Post         ** **
                        Official    Estimate      Official    Estimate       Official    Estimate       
                        \[Old\]**   \[New\]**     \[Old\]**   \[New\]**      \[Old\]**   \[New\]**      

  **Market Year Begin**             04/2003                   04/2004                    04/2005        MM/YYYY

  **Area Harvested**    3150        3156          3550        3400           0           3300           (1000 HA)

  **Beginning Stocks**  538         522           604         538            854         838            (1000 MT)

  **Milled Production** 6935        6935          8100        8300           0           7500           (1000 MT)

  **Rough Production**  10199       10199         11912       12206          0           11029          (1000 MT)

  **MILLING RATE        6800        6800          6800        6800           0           6800           (1000 MT)
  (.9999)**                                                                                             

  **TOTAL Imports**     1250        1200          500         500            0           1000           (1000 MT)

  **Jan-Dec Imports**   1200        1063          600         600            0           1000           (1000 MT)

  **Jan-Dec Import      0           331           0           100            0           200            (1000 MT)
  U.S.**                                                                                                

  **TOTAL SUPPLY**      8723        8657          9204        9338           854         9338           (1000 MT)

  **TOTAL Exports**     19          19            50          100            0           75             (1000 MT)

  **Jan-Dec Exports**   19          19            50          100            0           75             (1000 MT)

  **TOTAL Dom.          8100        8100          8300        8400           0           8450           (1000 MT)
  Consumption**                                                                                         

  **Ending Stocks**     604         538           854         838            0           813            (1000 MT)

  **TOTAL               8723        8657          9204        9338           0           9338           (1000 MT)
  DISTRIBUTION**                                                                                        
  --------------------- ----------- ------------- ----------- -------------- ----------- -------------- ---------

## Production

Post raised the forecast for the 2003/04 rice crop to 12.2 million tons
and area to 3.5 million hectares, which is slightly below Conab's
forecast of 12.5 million tons. Planting in Brazil runs from September
through November and very strong prices during this period lead to
increased planted area. The price of rough rice in Rio Grande do Sul
(RS) during September 2003 averaged R\$691/ton (US\$238/ton) compared to
just R\$439/ton (US\$131/ton) at planting in September 2002. The state
of Mato Grosso, where about 10 percent of the crop is produced, saw a
particularly large increase in rice area of about 45 percent as farmers
reacted to strong rice and soybean prices. Rice is often planted prior
to soybeans on newly cultivated land and under dryland (without
irrigation) conditions. At planting the cost of production was low and
financial returns were very high last year thus encouraging increased
rice seeding. Production would be even greater in Mato Grosso and other
states of the Center-West had growing conditions been better. Yields in
the region are expected to be even with last year as excessive rain in
Mato Grosso and dryness in Mato Grosso do sul have impacted crop
development.

Production in Rio Grande do Sul (RS), which produces about half the
national crop, is expected to be much greater in 2003/04 than the
previous year due to better planting conditions. Producer contacts in
the state's extreme southern region around Pelotas reported that
plantings took place ahead of schedule this year and weather has been
good. Lack of precipitation in southern Brazil over the past two months
is not considered significant since, unlike the Center-West, production
in the South is mostly irrigated. The western part of RS experienced
some flooding in January that contacts estimated resulted in a loss of
less than 100,000 tons. The total amount lost is very small compared to
the expected increase in production in the state of more than 1.0
million tons. Early harvest result show yields in the state at 5.9 kg/ha
compared to 4.9 kg/ha last year.

National production is forecast at a record in 2003/04 largely due to
record yields. Several factors contributed to the high yields including
the use of new hybrid seed in Rio Grande do Sul called "Avaxi" which is
reported to yield as much as 12.8 tons per hectare in some areas of the
state. Yields are also up due to high prices at planting that motivated
increased fertilizer use by producers seeking maximize profits.

+--------+-------+-------+-------+-------+-------+--------+--------+
| ####   |       |       |       |       |       |        |        |
| ## Bra |       |       |       |       |       |        |        |
| zilian |       |       |       |       |       |        |        |
|  Rice  |       |       |       |       |       |        |        |
| Yields |       |       |       |       |       |        |        |
+--------+-------+-------+-------+-------+-------+--------+--------+
|        | 1998  | 1999  | 2000  | 2001  | 2002  | 2003\* | 2004\* |
+--------+-------+-------+-------+-------+-------+--------+--------+
| Yield  | 3.02  | 3.12  | 3.24  | 3.32  | 3.22  | 3.48   | 3.34   |
| (      |       |       |       |       |       |        |        |
| mt/ha) |       |       |       |       |       |        |        |
+--------+-------+-------+-------+-------+-------+--------+--------+

\* Post Forecast

While production is forecast to be very large this year, the quality of
the crop is expected to be lower. Many producers used saved seed this
past planting rather than commercialized seed in an attempt to lower
costs and therefore quality is considered to be lower.

Production in 2004/05 is forecast to fall to 11.0 million tons due to
more normal planting and growing conditions that will lower yields.
Nevertheless, yields are forecast above 3.3 tons per hectare due to the
continuing trend of better seed varieties and growing practices. The
large crop this year this should ease prices somewhat giving less
incentive to plant rice next year. Area is forecast down to 3.3 million
hectares, but this fall should be somewhat mitigated by strong domestic
demand for rice from the "Zero Hunger" program which should stabilize
prices.

Unlike many other grain crops in Brazil, rice production has not grown
substantially in Brazil over the past several years. Despite an increase
in rice area in 2003/04, area devoted to rice production is only 50
percent of the area under cultivation 18 years ago. Meanwhile, overall
production has fluctuated between 8 and 11 million tons over the past 25
years with no real growth. Production continues to be concentrated in
the South with the southern state of Rio Grande do Sul producing about
half of the national crop. Production in the south is irrigated and
yields are generally high at more than 5 tons per hectare. Conversely,
production in the Center-West and Northeast is dryland cultivated with
much lower yields. The Northeast is comprised of many small producers
that rely on hand labor and use few inputs and thus yields are only one
third of those on the Southern lands.

The Center-West is the second largest production region but rice area
has not grown as many had predicted. With the massive expansion of
soybean and corn cropland the region, it was believed that rice would
also expand as it is often used as a precursor crop and occasionally in
rotation with soybeans. However, such expansion has not occurred on the
scale many had predicted and in fact, area has fallen from over 1
million hectares in 1998/99 to under 900,000 hectares in 2003/04.
Nevertheless, rice area in the Center-West could very easily expand
under different market conditions.

Unlike the Center-West, area expansion is not likely in RS where about
half of the national crop is produced. However, production in the state
is expected to expand due to better control of red rice. It is reported
that as much as 1.3 million tons of rice is left unharvested in the
state each year due to red rice infestation and only 5 percent of the
crop is unaffected by infestation. Some sources suggest that the annual
production loss is 20 percent. However, two new seed varieties under the
"Clearfield Rice" name will be available for planting in 2004/05. The
rice from the new seeds is tolerant to a herbicide developed by BASF,
called "Only" that kills red rice. The new seeds, which were developed
at the University of Louisiana, work in much the same way as roundup
ready soybeans but were developed from mutagenic rather than transgenic
technology. No royalties will be charged and BASF will gain only by
selling the "Only" herbicide. Reports suggest that 10 percent of the
upcoming crop will be planted with the new seeds with usage increasing
in future crops.

## Trade

With 2003/04 production expected to rebound, imports are forecast to
fall to just 500,000 tons for the marketing year. In mid December
Vietnam\'s Ministry of Trade signed a Memorandum of Understanding (MOU)
with Brazilian counterparts to export 150,000 tons of milled rice to
Brazil in 2004, indicating importers' desire to continue to source
non-Mercosul supplies despite a rebound in Mercosul production. However,
the MOU may be a sign of good will between the two nations rather than a
serious intent to trade. Brazilian importers are also looking at Thai
rice for the upcoming months but most of Brazil's imports will come from
Mercosul as exportable supplies should rebound. Imports in 2004/05 are
forecast to reach 1.0 million tons as production falls but domestic
demand increases slightly.

Total rice imports (milled bases) in calendar year 2003 totaled 1.1
million tons, according to the GOB. Imports in the marketing year are
expected to be 1.2 million tons. These import figures may different
slightly from USDA/Washington as Post uses Brazilian import data for
rice rather than global exporters' data.

+--------------------+-----------------+------------------+-----------+
| ##                 |                 |                  |           |
| #### 2003 Calendar |                 |                  |           |
|  Year Rice Imports |                 |                  |           |
|                    |                 |                  |           |
| (thousand tons --  |                 |                  |           |
| milled bases)      |                 |                  |           |
+--------------------+-----------------+------------------+-----------+
| Exporter           | Paddy (milled   | Milled           | Total     |
|                    | bases)          |                  |           |
+--------------------+-----------------+------------------+-----------+
| Uruguay            | 94              | 401              | 495       |
+--------------------+-----------------+------------------+-----------+
| United States      | 316             | 5                | 321       |
|                    |                 |                  | (331)\*   |
+--------------------+-----------------+------------------+-----------+
| Argentina          | 30              | 140              | 170       |
+--------------------+-----------------+------------------+-----------+
| Thailand           | 0               | 49               | 49        |
+--------------------+-----------------+------------------+-----------+
| Vietnam            | 0               | 11               | 11        |
+--------------------+-----------------+------------------+-----------+
| Paraguay           | 1               | 2                | 3         |
+--------------------+-----------------+------------------+-----------+
| French Guiana      | 0               | 3                | 3         |
+--------------------+-----------------+------------------+-----------+
| South Africa       | 0               | 1                | 1         |
+--------------------+-----------------+------------------+-----------+
| **Total**          | **441**         | **612**          | **1,063** |
+--------------------+-----------------+------------------+-----------+

Source: Minister of Industrial Development and Foreign Trade

\* PS&D shows 331,000 tons as reported by U.S. exports

Imports from Thailand and Vietnam were only 60,000 tons, which is much
less than some analysts had predicted early in the season. Mercosul
countries supplied 62 percent of imports despite speculation that the
U.S. and Asian exporters would fill most of Brazil's import needs due to
shortages in Mercosul. Contacts in the rice industry report that rice
from Thailand and Vietnam was not imported at the reduced tariff (see
paragraph below), as is commonly believed, but rather at 13.5 percent.
This is due to other countries buying the licenses to import milled rice
at the lower tariff. With an obvious freight advantage at a time of
skyrocketing freight rates, and no tariffs, Mercosul rice accounted for
90 percent of milled rice imports. For 2004, it is likely that Asian
rice will have a limited impact on the Brazilian market due to a bumper
domestic crop, high freight rates, and strong international prices.

Tight supplies in Brazil and throughout Mercosul along with rising
prices led the Minister of Agriculture to announce in early August a
reduction in the Common External Tariff (TEC) for rice to 4 percent,
down from the previous 11.5 percent on paddy rice and 13.5 percent on
milled. The reduced tariff came into effect the first of October and
expired the last day of December 2003. The reduction was largely due to
pressure from importers combined with the government\'s concern about
the impact of high rice prices on inflation. Rice accounts for 12
percent of the \"Cesta Basica\" used in measuring inflation. However, at
the request of Mercosul members, the quantity was limited to 500,000
tons of which paddy accounted for 400,000 tons and milled rice 100,000
tons on a rough basis.

Producers, particularly those in Rio Grade do Sul (RS), were unhappy
with the measure and argued that tariff reductions are a disincentive to
production. They insisted that instead of reducing rates, they should be
increased to the pre‑December 2002 levels of 18 percent for rough and 21
percent for milled or even to the maximum of 35 percent. However, once
the tariff rates were reduced in October, producers in RS and Uruguay
turned their attention to pressing the government for the higher rates
to be implemented at expiration of the reduced tariff on Jan 1, 2004.
However, tariff rates fell to under 10 percent per ton, which is the
current TEC for rough rice and 12 percent for milled rice.

Despite the lower tariff and the need for U.S. imports, quantities
imported were not as high as expected. Importers report that the even
more U.S. rice would have been purchased early in the year had the GSM
102 program for Brazil not been suspended (it has now been reinstated),
thus making the financing unavailable to importers. Additionally, very
high U.S. prices coupled with soaring freight rates encouraged even more
nearby shipments from Uruguay. Before the run up in U.S. prices to
\$194/ton, it was believed that the United States would fill nearly all
the 400,000-ton quota for rough rice with a lower TEC. U.S. exports
filled only a small portion of the lower duty quota (valid from October
to December) but total imports of U.S. rice for all of 2003 reached
486,764 tons (rough bases), which is nearly 400,000 tons greater than in
2002. The majority of imports from the U.S. were purchased by a group of
importers in the state of Sao Paulo. Post forecasts imports of U.S. rice
in 2004 at 100,000 tons as demand for imports from Non-Mercosul
countries should drop due to a recovery in production. However, demand
for U.S. rice is expected to be strong from new importers in the
Northeast where U.S. rice enjoys a freight advantage. Completion of a
new port in Fortaleza should also stimulate U.S. imports. U.S. exports
could be face additional challenges in the Brazilian market if rice
producers are successful in convincing the government to raise the TEC
and require that all non-Mercosul imported rice be labeled with country
of origin.

Rice exports from Brazil in calendar 2003 totaled 19,434 tons with most
shipped to Africa. Exports in 2004 are forecast at 100,000 tons, which
would be a 25-year high. Meanwhile exports in 2005 a forecast at 75,000
tons. The Rice Institute of Rio Grade do Sul (IRGA, in Portuguese) is
said to be negotiating sells of 70,000 tons of rice from the harvest
currently underway. Contacts believe the destinations could be to Chile
and Africa and some speculate the total exports could reach 200,000 to
300,000 tons. However, Post does not believe that more than 100,000 tons
are likely. It may appear counterintuitive that Brazil could be
exporting rice at the same time imports are expected to be 600,000 tons,
it is important to look at the situation with wheat this year to see
that exports are very possible.

Like wheat, most of the nation's rice is produced in the extreme
southern state of Rio Grande do Sul. During harvest for wheat and rice,
prices in the state plummet and storage is very limited. Storage is
particularly tight at rice harvest since the state is also a major
soybean producer with the two crops harvested at the same time. This
past year, wheat producers increased exports instead of accepting very
low domestic prices. As with the wheat harvest, the rice harvest is
expected to be massive in the state and thus producers are looking to
export some of the excess. With international rice prices high, it is
very likely that Brazil will have some success in exporting this year
and possibly with the 2005 crop.

## Consumption

Approximately 70 percent of rice consumed in Brazil is milled white rice
and 22 to 25 percent is parboiled, with whole rice accounting for the
remaining amount. Consumption of specialty rice such as organic rice and
very sticky oriental rice is small in Brazil but increasing rapidly.
Nevertheless, the majority of Brazilian consumers prefer a highly
polished, loose rice, light in color, long grained, and without a strong
taste and odor.

Per capita rice consumption in Brazil has remained steady over the past
20 years at between 70 and 75 kilograms per person but due to population
growth total consumption has been increasing at just over 1 percent each
year. However, consumption actually fell over the past year due to high
prices that lead consumers to opt for lower priced substitutes.
Additionally, poor economic growth has restrained consumer purchasing
power. Post forecasts consumption to increase in 2003/04 (begins March
2004) to 8.4 million tons of milled rice due to a larger domestic and
Mercosul crop and minimally lower retail prices. Additionally, the
government's "Zero Hunger" program is likely to spur consumption. CONAB
forecasts over 500,000 tons (rough bases) of additional consumption due
to "Zero Hunger" while others believe the rice need for the program
could reach 750,000 tons. However, not all of this will be "additional"
consumption since it is expected that at least some of the recipients of
rice under the program would have purchased rice anyway. Furthermore,
difficulties in executing the program could lead to less than the
projected amount being distributed. Despite the expected increase from
"Zero Hunger" other factors restraining consumption are likely to
continue, such as low consumer purchasing power and tight domestic
stocks, which will minimize the expected fall in prices, and thus
restrain the consumption increase.

Food, seed, and industrial use is forecast at 8.4 million tons milled
bases in 2003/04 with seed use totaling about 275,000 tons and 200,000
tons in post-harvest losses. Human and industrial use is forecast at 7.9
million tons.

## Ending Stocks

Government held stocks are very tight and not expected to increase
greatly in the near future. Due to a tight domestic and global rice
supply, domestic prices have been very strong and above the government
minimum prices. Therefore, the government has not procured rice for
storage and is unlikely to do so until prices approach the minimum
price. However, in some areas, such as Mato Grosso, that are expected to
have a healthy crop and difficulty in marketing it, the government may
be able to purchase rice inexpensively for storage. Ending stocks in
2003/04 are forecast at 527,000 tons but with larger production and
lower prices in 2004/05, stocks are forecast to increase to 877,000
tons.

# Sorghum PS&D

  --------------------- ----------- ------------- ----------- -------------- ----------- -------------- ---------
  **Brazil**                                                                                            

  **Sorghum**                                                                                           

                        **2002**    **Revised**   **2003**    **Estimate**   **2004**    **Forecast**   **UOM**

                        **USDA      **Post        **USDA      **Post         **USDA      **Post         ** **
                        Official    Estimate      Official    Estimate       Official    Estimate       
                        \[Old\]**   \[New\]**     \[Old\]**   \[New\]**      \[Old\]**   \[New\]**      

  **Market Year Begin**             10/2002                   10/2003                    10/2004        MM/YYYY

  **Area Harvested**    800         800           900         900            0           950            (1000 HA)

  **Beginning Stocks**  47          50            33          36             183         100            (1000 MT)

  **Production**        1900        1900          2100        2100           0           2200           (1000 MT)

  **TOTAL Mkt. Yr.      0           0             0           0              0           0              (1000 MT)
  Imports**                                                                                             

  **Oct-Sep Imports**   0           0             0           0              0           0              (1000 MT)

  **Oct-Sep Import      0           0             0           0              0           0              (1000 MT)
  U.S.**                                                                                                

  **TOTAL SUPPLY**      1947        1950          2133        2136           183         2300           (1000 MT)

  **TOTAL Mkt. Yr.      64          64            300         450            0           400            (1000 MT)
  Exports**                                                                                             

  **Oct-Sep Exports**   64          64            300         450            0           400            (1000 MT)

  **Feed Dom.           1775        1775          1575        1500           0           1725           (1000 MT)
  Consumption**                                                                                         

  **TOTAL Dom.          1850        1850          1650        1586           0           1800           (1000 MT)
  Consumption**                                                                                         

  **Ending Stocks**     33          36            183         100            0           100            (1000 MT)

  **TOTAL               1947        1950          2133        2136           0           2300           (1000 MT)
  DISTRIBUTION**                                                                                        
  --------------------- ----------- ------------- ----------- -------------- ----------- -------------- ---------

## Production

Post estimates sorghum production in 2003 at 2.1 million tons and area
at 900,000 hectares. The crop year runs from October to September with
the majority produced as a winter crop and harvested in September. Post
forecasts the 2004 crop at 2.2 million tons on 950,000 hectares. The
crop would be forecast even greater if not for a very tight supply of
planting seeds limiting winter crop area. Nevertheless, with current
strong sorghum prices and high input costs, it is likely that sorghum
will take some area that would have gone to more input intensive crops
such as winter corn (see cost of production chart in the corn production
section). In addition, sorghum producers now enjoy the government's
support in the form of options contracts, minimum prices, and subsidized
financing. This added security combined with continued export prospects
will allow for further expansion of sorghum area.

(For background information on sorghum production in Brazil see report
BR4603, Jan. 21, 2004.)

## Trade

Brazil has been a sporadic importer of sorghum over the past 20 years.
However, in 1999/00 and 2000/01 imports increased to 258,000 tons and
141,000 tons respectively. These relatively large imports were due to
feed millers' growing demand for the grain. However, Brazil has imported
only 4,000 tons over the past two years as a result of soaring domestic
production, which has more than filled domestic demand. Meanwhile,
Brazil's first significant exports of sorghum occurred in 2002/03 with
64,276 tons. In just the four months of the October/September 2003/04
international marketing year, exports have reached 277,000 tons.

The top Brazilian market over the past few months has been the EU with
imports of 233,000 tons. Corn and sorghum production in the EU are down
dramatically this year and feed millers are looking for cheap protein
imports. Brazilian corn exports have benefited from this EU demand but
the low price of Brazilian sorghum has made it very attractive as well.
Sorghum is entering the EU at a much lower duty than corn. Total sorghum
imports by the EU are forecast to nearly triple that of last year and
the United States and Brazil are competing for this market. Argentina is
not expected to be a major player as Argentine sorghum is reported to
have high tannin content. Brazil is also finding a buyer in the
Philippines were poultry producers are searching for substitutes to
replace feed wheat which is in short supply and priced high on the
global market. Due to these factors, Posts forecasts record exports in
2003/04 at 450,000 tons. Exports in 2004/05 are forecast at 400,000 tons
due to a large expected domestic crops. However, exports will be 50,000
tons less than in 2003/04 due to less expected demand from the EU and
Eastern Europe.

+----------------------+-----------------------+----------------------+
| ######               |                       |                      |
| Brazilian Marketing  |                       |                      |
| Year Sorghum Exports |                       |                      |
|                      |                       |                      |
| 1000 tons            |                       |                      |
+----------------------+-----------------------+----------------------+
| Destination          | Oct 2002 to Sept 2003 | Oct 2003 to Jan 2004 |
|                      |                       |                      |
|                      | 12 months             | 4 months             |
+----------------------+-----------------------+----------------------+
| Spain                | 47                    | 102                  |
+----------------------+-----------------------+----------------------+
| Italy                | 17                    | 101                  |
+----------------------+-----------------------+----------------------+
| Japan                | 0                     | 25                   |
+----------------------+-----------------------+----------------------+
| Holland              | 0                     | 19                   |
+----------------------+-----------------------+----------------------+
| Philippines          | 0                     | 17                   |
+----------------------+-----------------------+----------------------+
| Germany              | 0                     | 11                   |
+----------------------+-----------------------+----------------------+
| Others               | 0                     | 2                    |
+----------------------+-----------------------+----------------------+
| **Total**            | **64**                | **277**              |
+----------------------+-----------------------+----------------------+

## 

# Policy

## MERCOSUL

Brazil is a member of MERCOSUL, which is comprised of Brazil, Argentina,
Uruguay, and Paraguay. Peru, Chile and Bolivia are associate members of
Mercosul. Countries within MERCOSUL enjoy duty-free access for most
agricultural products traded within the trading bloc, while a Common
External Tariff (TEC) is applied for non-MERCOSUL countries. For
associate members of Mercosul the TEC is 60 percent of that applied to
non-Mercosul members. The TEC puts U.S. agricultural products at a
competitive disadvantage, particularly for the bulk commodity sector
(wheat, corn, and rice) in which profit margins are very thin. The price
difference between U.S. and Argentine wheat is often very small and the
11.5 percent TEC can be the difference in a purchase decision.

Tight supplies in Brazil and throughout Mercosul along with rising
prices led the Minister of Agriculture to announce in early August 2003
a reduction in the Common External Tariff (TEC) for rice to 4 percent,
down from the previous 11.5 percent on paddy rice and 13.5 percent on
milled rice. The tariff came into effect the first of October and
expired the last day of December 2003. The reduction was largely due to
pressure from importers combined with the government\'s concern about
the impact of high rice prices on inflation. Rice accounts for 12
percent of the \"Cesta Basica\" used in measuring inflation. However, at
the request of Mercosul members, the quantity was limited to 500,000
tons of which paddy accounted for 400,000 tons and milled rice 100,000
tons on a rough bases or about 68,000 tons on a milled basis.

The TEC for wheat is 10.0 percent, while corn and sorghum face a 8.0
percent tariff. The tariffs on non-MERCOSUL rice are 10.0 percent for
HS1006.10 (excluding for seed), 11.5 percent for HS1006.20, 12.0 percent
for HS1006.30.11 and HS1006.30.21, and 10.0 percent for HS1006.30.19 and
HS1006.30.29, and 11.5 percent for HS1006.40**.**

## Administrative and Fiscal Measures

U.S. agricultural products face other constraints in accessing the
Brazilian market. Administrative and fiscal impediments include the
Merchant Marine Tax, which is a 25-percent surcharge on the value of the
freight for imports of all products. This tax has been waived for
imports to the North/Northeast regions of Brazil in order to stimulate
development in the region. As a result, wheat is competitive in the
Northeast and significant imports were seen in 2003. Even greater
imports of U.S. wheat and rice could be achieved in the North/Northeast
without the punitive TEC. These constraints increase costs for the
importer and generally result in the exporter being priced out of much
of the Brazilian market, particularly the south where the U.S. does not
enjoy a freight advantage and must compete more on quality. Some
measures, particularly the TEC, have been removed at the request of
importers, in periods of domestic shortages in order to facilitate
imports and keep domestic prices and thus inflation under control. The
lower rice TEC during the last quarter of 2003 is a good example of
this.

## Support Prices

Brazil maintains agricultural support prices for many commodities, and
the prices often vary by region, variety, and timing of the crop . The
minimum prices for corn for the 2003/04 crop year ranged regionally from
R\$13.50/60kg to R\$16.50/60kg. Rice minimum prices are more variable,
due to greater differences in varieties and planting methods, and range
from R\$10.12/60kg to R\$20.70/60kg.

In an effort to encourage wheat production and reduce dependence on
imports, the Minister of Agriculture increased the minimum price for
wheat in 2003 and maintained higher prices for non-traditional growing
regions. The 2003 minimum price for wheat in the three southern states
of Rio Grande do Sul, Santa Catarina, and Parana is R\$400/ton while
Mato Grosso do Sul, Mato Grosso, Goias, Sao Paulo, Minas Gerais, Bahia
and the Distrito Federal enjoy a higher minimum price of R\$450/ton.

The government is likely to use a variety of the policies and programs
discussed below for the 2004/05 crops. Although next crop year's
programs will not be announced for months, Post expects that policy
tools will remain essentially the same as 2003/04.

+----------------+--------+--------+--------+--------+-------+-------+
| ######         |        |        |        |        |       |       |
| Minimum Prices |        |        |        |        |       |       |
|  For Class 1 W |        |        |        |        |       |       |
| heat (Brazilia |        |        |        |        |       |       |
| n \$ Reis/Ton) |        |        |        |        |       |       |
+----------------+--------+--------+--------+--------+-------+-------+
| Region         | 2002   |        | 2003   |        | \%    |       |
|                |        |        |        |        | Inc   |       |
|                |        |        |        |        | rease |       |
+----------------+--------+--------+--------+--------+-------+-------+
|                | Soft   | Bread  | Soft   | Bread  | Soft  | Bread |
|                |        | Wheat  |        |        |       |       |
|                |        |        |        | Wheat  |       | What  |
+----------------+--------+--------+--------+--------+-------+-------+
| South          | 248    | 258    | 248    | 400    | 40    | 40    |
+----------------+--------+--------+--------+--------+-------+-------+
| Center-West,   | 261    | 300    | 391    | 450    | 50    | 50    |
| South- East &  |        |        |        |        |       |       |
| Bahia          |        |        |        |        |       |       |
+----------------+--------+--------+--------+--------+-------+-------+

Support Prices

# Key Elements of Domestic Support Programs

The Brazilian government maintains a rural credit system that offers
various instruments to support agricultural production and farm income.
These programs are summarized below:

1\. Government Commodity Loan Program (EGF):

This program is highly used by farmers to finance the holding of their
products in accredited warehouses as collateral for the bank lender. The
loan amount is based on the value of product offered as guarantee, based
on a minimum price set annually by the government for various products.
Banks normally provide loans on the basis of 70 percent of the minimum
price. Subsidized interest is available at annual rates of 8.75 percent
interest (commercial rates are 26 percent). The volume of such
subsidized credit available is limited.

2\. EGF-Industry Commodity Loan Program:

This program is similar to EGF, but applicable only to processors of
agricultural commodities under the Minimum Support Price Program, except
for rice and soybeans. Access to this program is available between the
processor and the farmer or cooperative. Financing is limited to 50
percent of the production capacity of the processors, and payment to the
farmer cannot be lower than the government-established minimum commodity
price in effect. Subsidized interest is available at annual rates of
8.75 percent.

3\. Government Commodity Acquisition Program (AGF):

This program is similar to EGF and applicable to farmers who sell farm
products to the federal government. Products must be in accredited
warehouses, cleaned, dried and graded. The government, through the
National Food Company (CONAB), an entity of the Ministry of Agriculture
and Food Supply (similar to USDA/CCC) purchases the product at the
minimum price.

4\. Rural Promissory Note (CDR):

Processors of agricultural commodities can contract a CDR with
accredited banks. Financing is limited to 50 percent of the processor's
production capacity. Processors must prove they have paid at least the
minimum price to the producer. Products eligible for CDR are: cotton,
rice, corn and wheat. Subsidized interest rates are 8.75 percent plus
banking expenses.

5\. Subsidy Auction Program (PEP):

This program is similar to the U.S. loan deficiency payment program.
Through this program, the government pays the difference between the
prevailing market price and the minimum price of the product. Only
wheat, corn, and rubber have been eligible for this program so far. The
federal government through CONAB conducts public auctions to set a
premium for buyers of a given product. These buyers then contact
producers interested in selling their production at the minimum support
price in force. Buyers (normally processors or millers) must transport
the product to the destination previously established by the program.

PEP was first introduced in November 1996 to help sales of domestic
wheat at the minimum price and to relieve pressure on government
purchases of wheat. The PEP was initially put in place to assist in the
marketing of lower quality wheat shunned by mills at prevailing market
prices. Wheat was put up for auction to millers who bid on the level of
the subsidy and not the price of the wheat. Through these official
auctions, the government compensated for some of the difference between
the prevailing market price and the minimum price. Under the PEP, the
government never takes possession of the wheat itself but facilitates
the transfer of the wheat from the seller to the buyer. In some respects
the program is basically a transportation subsidy as the bonus varies
with the distance from the seller to the purchasing mill. After an
initial slow start in 1996, PEP auctions accelerated and PEP has proven
useful marketing tool for the Brazilian government. The costs of PEP are
much less than purchase, storage, subsequent marketing, and eventual
losses under a Government purchase program.

6\. Option Contract:

The federal government through CONAB offers a futures price, normally
between harvest periods, for purchase of eligible (wheat, corn, rice,
and cotton) product. The futures price is established by CONAB at the
moment the contract is offered, and the price is always above the
minimum price. The producer may acquire a put option to sell contracts
of 27 metric tons. The producer of the option contract acquires the
right to sell the contracted product to CONAB at a later date and price
specified in the contract.

7\. Product Equivalency:

Small producers, under the Program to Strengthen Family Farms (PRONAF),
are entitled to production cost financing based on the equivalency
concept: farmers pay their back loans by delivering an equivalent amount
of the crops. The government established minimum price is used as
reference. This scheme is only available for cotton, rice, corn and
wheat. Interest rates for small family farms are highly subsidized, at
the annual interest rate of 5.75 percent. The volume of credit available
at this rate is limited.

8\. Other:

Long-term support for production and processing of agricultural products
is centralized in the BNDES - Brazilian Bank for Economic and Social
Development, along with the Special Agency for Industrial Financing
(FINAME). Both form the BNDES system. The BNDES system's mission is to
foster economic and social development in Brazil, acting as an agent for
long-term investments. The BNDES system provides financial support to
the following sectors of the Brazilian economy: agriculture, industry,
infrastructure, commerce and services. The BNDES system offers a broad
range of services to support various agribusiness project types. Among
those are:

--- FINAME Rural. A credit line destined for acquisition, maintenance
and/or rebuilding of agricultural machinery. The annual interest rate is
14.5 percent for a period of 5 years, with a grace period of two years.

-   BNDES Automatic. A credit line aimed at creating pasture, other
    animal production projects, and for production of forest products.
    Annual interest rates are similar to the credit line above and terms
    of financing are flexible according to each project.

Programs covered under the 2003/04 Agricultural Plan are listed below.
Funding in 2003/04 increased to R\$5.75 billion (U.S. \$1.91 billion)
from R\$4.63 billion (U.S.\$ 1.58 billion) in 2002/03.

+-----------+---------------+-------+-------+---+-------+------+-------+
| **2003/04 |               |       |       |   |       |      |       |
| Agr       |               |       |       |   |       |      |       |
| icultural |               |       |       |   |       |      |       |
| Plan**    |               |       |       |   |       |      |       |
|           |               |       |       |   |       |      |       |
| Ministry  |               |       |       |   |       |      |       |
| of        |               |       |       |   |       |      |       |
| Ag        |               |       |       |   |       |      |       |
| riculture |               |       |       |   |       |      |       |
| and       |               |       |       |   |       |      |       |
| Supply    |               |       |       |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| Program   | Description   | 20    | 20    | C |       | Inte | Ma    |
|           |               | 02/03 | 03/04 | r |       | rest | ximum |
|           | of Items      |       |       | e |       | Rate | Pa    |
|           | Financed      | Fu    | Fu    | d |       |      | yment |
|           |               | nding | nding | i |       | (%)  | P     |
|           |               |       |       | t |       |      | eriod |
|           |               |       |       | L |       |      | (y    |
|           |               |       |       | i |       |      | ears) |
|           |               |       |       | m |       |      |       |
|           |               |       |       | i |       |      |       |
|           |               |       |       | t |       |      |       |
|           |               |       |       |   |       |      |       |
|           |               |       |       | R |       |      |       |
|           |               |       |       | \ |       |      |       |
|           |               |       |       | $ |       |      |       |
|           |               |       |       | 1 |       |      |       |
|           |               |       |       | , |       |      |       |
|           |               |       |       | 0 |       |      |       |
|           |               |       |       | 0 |       |      |       |
|           |               |       |       | 0 |       |      |       |
|           |               |       |       | / |       |      |       |
|           |               |       |       |   |       |      |       |
|           |               |       |       | O |       |      |       |
|           |               |       |       | p |       |      |       |
|           |               |       |       | e |       |      |       |
|           |               |       |       | r |       |      |       |
|           |               |       |       | a |       |      |       |
|           |               |       |       | t |       |      |       |
|           |               |       |       | i |       |      |       |
|           |               |       |       | o |       |      |       |
|           |               |       |       | n |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
|           |               | ###   |       |   |       |      |       |
|           |               | ### R |       |   |       |      |       |
|           |               | \$ Mi |       |   |       |      |       |
|           |               | llion |       |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| P         | Fixed or      | 380   | 240   | 2 |       | 8.75 | 8     |
| RODEFRUTA | semi-fixed    |       |       | 0 |       |      |       |
|           | investments   |       |       | 0 |       |      |       |
|           | related to    |       |       |   |       |      |       |
|           | the           |       |       |   |       |      |       |
|           | introduction  |       |       |   |       |      |       |
|           | and           |       |       |   |       |      |       |
|           | improvement   |       |       |   |       |      |       |
|           | of fruit      |       |       |   |       |      |       |
|           | varieties.    |       |       |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| MODERAGRO | Soil          | 570   | 600   | 2 |       | 8.75 | 5     |
|           | improvement,  |       |       | 0 |       |      |       |
|           | green         |       |       | 0 |       |      |       |
|           | fertilizer,   |       |       |   |       |      |       |
|           | soil          |       |       |   |       |      |       |
|           | conservation, |       |       |   |       |      |       |
|           | reclamation   |       |       |   |       |      |       |
|           | of pastures,  |       |       |   |       |      |       |
|           | and           |       |       |   |       |      |       |
|           | designation   |       |       |   |       |      |       |
|           | of meadow.    |       |       |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| PRODEAGRO | Fixed and     | 140   | 60    | 1 |       | 8.75 | 5     |
|           | semi-fixed    |       |       | 5 |       |      |       |
|           | investments   |       |       | 0 |       |      |       |
|           | related to    |       |       |   |       |      |       |
|           | production of |       |       |   |       |      |       |
|           | flower, goat  |       |       |   |       |      |       |
|           | & sheep,      |       |       |   |       |      |       |
|           | fish, honey,  |       |       |   |       |      |       |
|           | pork,         |       |       |   |       |      |       |
|           | poultry, and  |       |       |   |       |      |       |
|           | rubber.       |       |       |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| M         | Fixed and     | 300   | 500   | 4 |       | 8.75 | 8     |
| ODERINFRA | semi-fixed    |       |       | 0 |       |      |       |
|           | investments   |       |       | 0 |       |      |       |
|           | directed      |       |       |   |       |      |       |
|           | toward        |       |       |   |       |      |       |
|           | irrigated     |       |       |   |       |      |       |
|           | agriculture   |       |       |   |       |      |       |
|           | and the       |       |       |   |       |      |       |
|           | installation  |       |       |   |       |      |       |
|           | or            |       |       |   |       |      |       |
|           | improvement   |       |       |   |       |      |       |
|           | of silos or   |       |       |   |       |      |       |
|           | rural         |       |       |   |       |      |       |
|           | properties.   |       |       |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| PRODECOOP | Fixed and     | 250   | 450   | 2 |       | 1    | 12    |
|           | semi-fixed    |       |       | 0 |       | 0.75 |       |
|           | investments   |       |       | , |       |      |       |
|           | for           |       |       | 0 |       |      |       |
|           | cooperative   |       |       | 0 |       |      |       |
|           | organizations |       |       | 0 |       |      |       |
|           | seeking to    |       |       |   |       |      |       |
|           | aggregate the |       |       |   |       |      |       |
|           | value of      |       |       |   |       |      |       |
|           | agricultural  |       |       |   |       |      |       |
|           | production.   |       |       |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| PROPFLORA | Fixed and     | 60    | 50    | 1 |       | 8.75 | 12    |
|           | semi-fixed    |       |       | 5 |       |      |       |
|           | investments   |       |       | 0 |       |      |       |
|           | for the       |       |       |   |       |      |       |
|           | commercial    |       |       |   |       |      |       |
|           | planting of   |       |       |   |       |      |       |
|           | forests.      |       |       |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| PROLEITE  | Machinery and | 100   | 100   | 8 |       | 8.75 | 5     |
|           | equipment for |       |       | 0 |       |      |       |
|           | dairies.      |       |       |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| M         | Agricultural  | 1,000 | 2,000 | N |       | 9.75 | 5     |
| ODERFROTA | tractors,     |       |       | o |       |      |       |
|           | implements,   |       |       | L |       |      |       |
|           | and           |       |       | i |       |      |       |
|           | harvesters,   |       |       | m |       |      |       |
|           | as well as    |       |       | i |       |      |       |
|           | equipment for |       |       | t |       |      |       |
|           | coffee        |       |       |   |       |      |       |
|           | processing.   |       |       | e |       |      |       |
|           |               |       |       | x |       |      |       |
|           |               |       |       | c |       |      |       |
|           |               |       |       | e |       |      |       |
|           |               |       |       | p |       |      |       |
|           |               |       |       | t |       |      |       |
|           |               |       |       | f |       |      |       |
|           |               |       |       | o |       |      |       |
|           |               |       |       | r |       |      |       |
|           |               |       |       | c |       |      |       |
|           |               |       |       | o |       |      |       |
|           |               |       |       | f |       |      |       |
|           |               |       |       | f |       |      |       |
|           |               |       |       | e |       |      |       |
|           |               |       |       | e |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
|           |               |       |       | 2 |       | 1    | 6     |
|           |               |       |       | 0 |       | 2.75 |       |
|           |               |       |       | c |       |      |       |
|           |               |       |       | o |       |      |       |
|           |               |       |       | f |       |      |       |
|           |               |       |       | f |       |      |       |
|           |               |       |       | e |       |      |       |
|           |               |       |       | e |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| PROGER    | Fixed and     | 100   | 250   | 5 |       | 7.25 | 8     |
|           | semi-fixed    |       |       | 6 |       |      |       |
|           | investments   |       |       |   |       |      |       |
|           | of small      |       |       |   |       |      |       |
|           | farmers.      |       |       |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| FINAME    | Machinery and | 500   | 500   | 3 |       | 1    | 5     |
| AGRICOLA  | equipment for |       |       | 0 |       | 3.95 |       |
| ESPECIAL  | the           |       |       | 0 |       |      |       |
|           | processing of |       |       |   |       |      |       |
|           | cotton,       |       |       |   |       |      |       |
|           | fruit, seeds, |       |       |   |       |      |       |
|           | fish, and     |       |       |   |       |      |       |
|           | others.       |       |       |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| **S       |               | **3,  | **4,  |   |       |      |       |
| UBTOTAL** |               | 430** | 750** |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| **CONST   |               | **1,  | **1,  |   |       |      |       |
| ITUTIONAL |               | 200** | 000** |   |       |      |       |
| FUNDS\*** |               |       |       |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+
| **TOTAL** |               | **4,  | **5,  |   |       |      |       |
|           |               | 630** | 750** |   |       |      |       |
+-----------+---------------+-------+-------+---+-------+------+-------+

\* Constitutional funds can be used in any of the above programs or
other programs.