After record exports in 2018, sector expects higher domestic demand in 2019

Cepea, January 17, 2019 – CATTLE – After record exports of in natura beef in 2018, Brazilian agents from the cattle sector believe sales in the domestic market will increase in 2019, based on expectations for an economic growth, which tends to push up consumers’ purchase power.

 

The Central Bank of Brazil estimates the GDP to grow 2.5% this year. Besides, the inflation is expected to be controlled and the interest rate, to keep low, favoring investments. The sector is also attentive to the changes in the Brazilian government, a larger grains crop (which tends to reduce feed costs) and the possible decrease in animal supply, due to higher female slaughter – the two last factors may even push up cattle farmers’ profit margins along 2019.

 

This context tends to increase the population’s income and, consequently, encourage meat consumption, mainly beef. However, the international market is still the focus of the Brazilian cattle sector. In 2018, Brazil shipped 1.353 million tons of in natura beef, a record, obtaining a 5.6 billion USD revenue.

 

Besides, the US dollar at high levels and the difficulty to find other beef-supplying countries at low costs and large volumes may favor Brazilian beef exports in 2019. Currently, beef prices have been higher at Brazil’s main competitors, such as the United States, Argentina, Paraguay, Uruguay and Australia, favoring the competitiveness of the Brazilian product.

 

In this context, the Brazilian cattle sector believes China and Hong Kong will continue to import the national beef, as in 2018. Besides, Russia has resumed purchasing meat from Brazil and new slaughter facilities have been certified to export to the Chinese market.

 

As for supply, higher animal slaughter in 2018, mainly heifer slaughter, may lower availability and underpin the domestic arroba quotes. On the other hand, the increase in productivity may ensure a high beef supply in 2019.

 

FEEDLOT – Brazilian cattle farmers should be cautious, mainly in the second semester of 2019, since a large grains crop and firm prices in the future market in September and October tend to increase the number of animals in feedlot, which could press down arroba quotes.

 

SWINE – After a challenging 2018, the Brazilian swine sector expects a recovery for 2019. The positive estimates are based on both possible increases in pork meat exports (mainly to Asian countries) and lower production costs, which may be pressed down by higher grains production in Brazil.

 

According to the USDA, the Brazilian exports of pork meat may grow 7% in 2019, boosted by an increase in the demand from China, since outbreaks of African swine fever (ASF) have reduced the Chinese pig herd.

 

It is important to stress that, in 2018 (until November), 25% of all the pork meat Brazil exported was sent to China – the amount shipped to the Asian country was almost three-fold that from the previous year. For 2019, the USDA estimates the Chinese purchases to increase by 7%; Imports from Singapore and Hong Kong, in turn, should grow 3%.

 

On the other hand, shipments to Russia should not take off in 2019. The country has invested in swine production and may import smaller volumes of pork meat. Until 2017, Russia was the biggest purchasing country of the Brazilian pork, while in 2018, the country kept the ban on the national product for almost the entire year.

 

Regarding production costs, the supply of corn and soybean meal should be higher this year, which may limit sharp valuations or even prevent prices from rising. According to data from Conab (National Company for Food Supply) released in December, the 2018/19 corn crop should be 12.8% larger than the previous. For soybean meal, production is forecast to increase by 4.09%.

 

The Brazilian swine production, in turn, should be 3% higher this year, according to estimates from the USDA, increasing the domestic pork surplus. Still, exports, which are expected to increase too, and the possible higher demand for the product in Brazil tend to balance supply in the domestic market.

 

In this case, pork meat consumption may increase in Brazil, boosted by the expected economic growth, which tends to push up consumers’ purchase power. The Central Bank of Brazil estimates the GDP to grow 2.5% in 2019 and the official inflation index (IPCA) to remain stable, at 4%.

 

POULTRY – 2018 was a year of challenges for the poultry sector; however, perspectives for 2019 are positive. A recovery is likely to happen, because players expect lower prices of main inputs used in the activity (corn and soybean meal) and the intensification of broiler trades in both domestic and international markets.

 

As for inputs, Conab indicates a 12.8% increase in the 2018/19 corn production in relation to the previous (report released in December). Regarding soybean meal, production is likely to increase 4.09% in the same comparison. This scenario may press down values of inputs and, consequently, reduce production costs for chicken producers.

 

However, the domestic availability of corn and soybean meal will depend on the attractiveness of exports. Therefore, producers need to be focused on the relation between China and the United States, which has been influencing significantly the grains market in Brazil.

 

Besides the possible decrease in production costs, the sector expects higher demand. In Brazil, the meat consumption might increase, favored by the possible economic growth. Brazil’s Central Bank (Focus Market Readout) estimates that the Brazilian GDP may increase 2.55% in 2019, which may push up Brazilians’ purchase power. The demand for broiler can be more favored because it is cheaper compared to other products.

 

Considering sales to the international market, the USDA says that Brazil is likely to export 3.8 million tons of broiler in 2019, 2.4% up in relation to the volume in 2018. The global market of meat may step up due to the economic growth expected for developing countries. These nations may produce more, but it cannot be enough to meet the domestic consumption.

 

In this scenario, this year, Brazil may increase sales to countries that are not major importers, such as Chile. Moreover, trades to Saudi Arabia are likely to recover this year after the reduction in 2018, because meatpackers in Brazil have been adjusting to new requirements for halal slaughter.

 

As for the Brazilian broiler production, projections from the USDA indicate that it is likely to total 13.8 million tons in 2019, for an increase of 1.8% compared to 2018.

 

(Cepea-Brazil)

 

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