Brazilian cattle farmers may look back to 2017 in order to face the current crisis

Cepea, April 17, 2020 – CATTLE – With the covid-19 pandemic worldwide, all the agents in the beef cattle chain need to be cautious and carefully manage the activity. In Brazil, although the current scenario is obviously very different from the crisis faced in 2017, agents from the sector may look back to that period in order to take decisions now.

 

In 2017, the Brazilian cattle farming went through two difficult periods. The first one was linked to the “Weak Flesh Operation”, which occurred in mid-March and was related to the investigation of meat processors; the second one, in May, was the plea-bargain of the largest meat processing company in Brazil. In that period, animal purchases decreased sharply, pressing down arroba quotes.

 

During that same period (May/June), backgrounding farmers decided not to send animals to feedlot, reducing supply between August and September. As a result, arroba prices increased sharply in late July, reaching the highest level in September.

 

This year, it has been very difficult to predict how the market will behave. The number of animals sent to feedlot may decrease sharply in the coming weeks and months, as it happened in 2017. Besides the covid-19 pandemic, calf prices have been at record levels (in real terms) this year in many Brazilian regions, and corn and soybean meal quotes have been high too. Some imported inputs became very expensive in the last months, due to the strong dollar.

 

In this context, animal supply may be low in Brazil in the second semester, which does not necessarily mean that prices will rise as much as they did in 2017, since demand may also decrease sharply in the domestic market – many purchasers may opt for consuming cheaper animal proteins, such as chicken meat and eggs.

 

Beef carcass prices have been high since the last quarter of 2019, when they hit the real record in all Cepea series. Besides, consumers’ purchase power tends to decrease, due to the economic crisis and possible higher unemployment rates.

 

The demand from the international market may be the escape valve. Although the coronavirus pandemic was more severe in China between late 2019 and early 2020, the Asian country – which is the number one destination for the Brazilian meat – continued to import high beef volumes in the first quarter of 2020. However, Brazil also depends on the purchases of other countries and continents, such as Europe, which is among the top 10 purchasers of the Brazilian beef, and also which should lower imports because of the effects of the covid-19 pandemic.

BRAZILIAN MARKET IN APRIL – Arroba prices oscillated in the Brazilian market in the first fortnight of April, influenced by operators’ attitude in and out of the market – these agents were closing deals only when necessary. On April 15, the CEPEA/B3 Index for fed cattle closed at 198.50 BRL (37.91 USD), 2.3% down in the fortnight.

 

HOG – Live hog prices decreased steeply in the first fortnight of April in most Brazilian regions surveyed by Cepea. Although the prices of some inputs used in the activity have dropped, hog devaluations were so sharp that the exchange ratio between live hog and corn or soybean meal decreased to the lowest level since September 2018.

 

In the interior of São Paulo, the purchase power of hog growers against soybean meal decreased by 15.9% between March 31 and April 14, when a kilogram of live hog was worth 2.64 kilos of the by-product. As regards corn, a kilogram of the animal was worth 4.83 kilograms of the cereal, volume 9.3% lower in the same period.

 

In western Santa Catarina, hog farmers were able to purchase 2.35 kilos of soybean meal by selling a kilo of the animal on April 14, 21.4% down compared to that on March 31. Against corn, hog growers’ purchase power decreased by 18.1% in the same period, to 4.68 kilos of corn per kilo of hog on April 14.

 

Hog prices dropped in the independent market in the first half of the month, due to the weak demand for pork meat, which is currently lower than supply. Processors, which have been producing lower volumes, were also purchasing less animals in the independent market in the first half of the month.

 

Between March 31 and April 14, hog prices dropped a steep 18.8% in the SP-5 region (Bragança Paulista, Campinas, Piracicaba, São Paulo and Sorocaba), to 4.29 BRL/kg on April 14. In western Santa Catarina, quotes decreased even more sharply: 20.3%, to 3.88 BRL/kg.

 

EXPORTS – Although the coronavirus pandemic was severe in China between late 2019 and early 2020, the Asian country continued to purchase large volumes of pork meat, favoring the Brazilian shipments of the product. In March, China purchased 35.7 thousand tons of the national pork meat, according to data from Secex, increasing its share in the Brazilian exports by 2.3% and accounting for almost 50% of all the amount Brazil exported in that period.

 

In March, Brazilian pork exports totaled 71.5 thousand tons, the third largest volume in all Cepea series (elaborated with data from Secex), which started in 1997. This amount is 9.4% higher than that from February and 31.8% above that from March 2019.

 

Revenue in Reais hit the highest level in the series, boosted by the record US dollar (nominal terms). In March, revenue totaled 809.67 million BRL, 23% up compared to that in the previous month and two-fold that from March 2019.

 

POULTRY – Although demand and prices are usually higher in the Brazilian market in the first weeks of the month, because of the payment of workers’ wages, this month has been different. Between March 31 and April 15, prices for most chicken products decreased.

 

Devaluations were linked to the low liquidity in the Brazilian market. As restaurants, schools and bars have closed and/or reduced activities, the demand for meat is weak. Thus, agents from processors have been cautious when purchasing animals for slaughter, bidding lower prices for new batches.

 

In the independent market of live chicken, the steepest price drops were registered in the Greater São Paulo and in Pará de Minas (MG), 10.9% in both locations, to 2.87 BRL per kilo on Wednesday, 15.

 

In the chicken meat market, whole frozen chicken devalued by 15.8% in Toledo (PR) between March 31 and April 15, to 4.26 BRL/kg on April 15. In the Greater São Paulo, quotes decreased 7.1%, averaging 4.33 BRL/kg. Chilled chicken prices decreased 11.4% in Toledo, to 4.65 BRL/kg, and 9.7% in the Greater São Paulo, to 4.14 BRL/kg on April 15.

 

EXPORTS – Opposite to the low liquidity in the Brazilian market, the exports pace for in natura chicken meat has been fast. According to data from Secex, the daily average of shipments between April 1 and 9 was 17.43 thousand tons, 18.1% up compared to that from March and 17.3% higher than that from April 2019.

 

If this pace continues until late April, Brazil may export 348 thousand tons of in natura chicken meat, accounting for a 7.2% increase compared to that in the previous month and also 11.5% up compared to that in April last year (Secex).

 

(Cepea-Brazil)

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