Central America Agribusiness Report Q3 2013 - New Market Report

The Central America coffee sector is set to see disappointing production in 2012/13 as a rust outbreak affected this year's harvest. We believe low global prices could discourage production in the coming years, putting further downside risks to the development of the sector in the medium term. The region is generally dependent on imports for corn, and we expect the production deficit to widen over our forecast period. That said, Central America is expected to remain self-sufficient in sugar and even increase its potential for sugar exports, with the industry having potential to attract investment over the medium term.

* Coffee production growth to 2016/17: 15.9% to 14.3mn bags. As the region becomes more attractive to investors, we expect the coffee sector to see increased export opportunities. We have revised our forecasts after the recent disease outbreak, and lower prices will limit upside in the near term.
* Corn consumption growth to 2017: 11.1% to 6.8mn tonnes. Demand growth for corn will far outpace production in Central America, affecting prices and keeping the area import-dependent for its grain needs.
* Sugar production growth to 2016/17: 9.2% to 5.1mn tonnes. Most countries in the region will continue to run a small production surplus out to 2016/17, and development of the export industry could present upside risks to our production forecasts over the long term.
* 2013 real GDP growth: 3.3% year-on-year (y-o-y). Down from 3.9% in 2012 and predicted to average 3.4% over 2012-2017.
* Consumer price inflation: 4.4% y-o-y in 2013. Down from 4.7% in 2012 and predicted to average 4.8% over 2012-2017.

Full Report Details at
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Industry Outlook

We have made significant downgrades to our Central America coffee forecasts on the back of coffee rust that has affected nearly every country in the region, including Mexico. The disease directly affects coffee leaves and causes them to prematurely fall, causing abnormal development of coffee pods. In Honduras, the government declared an emergency in January and expects production to fall by an estimated 1mn bags in 2012/13. We have consequently revised down our production forecasts and now see output for the season at around 3.6mn bags. In El Salvador, the country's national coffee council believes that the disease has affected the entire sector, and we have duly revised down production by 25% to 900,000 bags. We have also revised our 2013/14 estimates for the country to 900,000 bags (from 1.5mn bags previously) as we believe the disease is likely to affect next year's crop as well.

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