Cepea, January 15, 2021
CATTLE – After setting records in 2020, the Brazilian cattle sector begins 2021 with positive perspectives for the domestic market. The major factors for this optimist scenario are related to international demand and the possible low supply of animals for slaughter this year. If the Brazilian economy recovers in 2021, the domestic demand may also help to underpin prices.
As regards the international demand, it seems China will continue to purchase high volumes of beef from Brazil, primarily because of its needs to supply the local market, since the country is still recovering from the losses caused by the African Swine Fever (ASF) disease.
The dollar may also favor the Brazilian sector this year, since it tends to keep exports high. According to the Focus Report from the Central Bank, released on January 4, the American currency is forecast to continue at around 5.00 BRL in 2021.
Concerning the Brazilian beef market, there should be a period of adjustments in early 2021, due to the interruption of the emergency aid paid by the federal government and the high unemployment rate. In the following months, the economy and the population income are expected to recover, which may increase the demand for meat. The Focus Report forecasts an increase of 3.46% in the Brazilian economy in 2021.
As for supply, slaughter should continue low in early 2021, but, as more cows are being kept for production, supply may increase, primarily from the end of the season, with the beginning of weaning. Thus, the supply of animals for slaughter may continue low in the first semester, with cattle farmers searching for a better price balance.
HOG – Despite the mishaps caused by the coid-19 pandemic, the Brazilian swine sector ended 2020 with record prices, slaughter and exports. For 2021, these positive results are expected again, despite high production costs. The international demand for the Brazilian pork meat should continue firm, underpinned by the purchases from China, while in the domestic market, demand should be favored by a possible improvement of the economy.
Data from the ABPA indicate that the Brazilian production of pork meat may increase by 3.5% in 2021 compared to that forecast for 2020, to almost 4.4 million tons. This is similar to that estimated by the USDA: an increase of 3.6% in the Brazilian production, totaling 4.1 million tons.
As regards demand, ABPA estimates exports to increase by around 10% between 2020 and 2021, while the USDA forecasts Brazilian shipments to be 4.2% higher this year. Besides the fast exports pace to China, already observed in 2020, sales to other destinations, majorly in Asia, are expected to increase too.
It is worth to mention that, although shipments to China are still high, the country seems to be recomposing its hog herd, which was decimated by the African swine fever (ASF) disease. This possibility is concerning Brazilian hog farmers, due to the possible implications in the mid and long terms.
Concerning the domestic demand, according to the Focus Report from the Central Bank, released on December 31, 2020, the Brazilian GDP should rise by 3.4% in 2021. Although estimates are lower than that previously forecast, this increase is enough to encourage pork meat sales in the Brazilian market, which may grow up to 2%, according to ABPA, and around 3.5%, according to the USDA. The recovery of the food service market tends to underpin this increase in the demand for pork.
PRODUCTION COSTS – Production costs should continue high in 2021, since the prices of the major feed inputs, corn and soybean meal, should continue firm this year, boosted by demand from both the Brazilian and the international markets. This scenario tends to press down the purchase power of Brazilian hog farmers for one more year.
According to the Grains Team from Cepea, in 2021, the inventory/consumption ratio for soybean may be the lowest in the past nine seasons, which may underpin the domestic prices for both soybean and its by-products in 2021. As for corn, inventories are low too. Besides, firm demand and uncertainties about supply in the 2020/21 season should underpin domestic corn prices higher than the average in previous years.
POULTRY – In 2020, the competitiveness of chicken meat set a record, and for 2021, the price gap between this protein and beef and pork carcasses is expected to continue wide. Economy tends to recover gradually in the Brazilian market, and, thus, consumers’ purchase power tends to continue weak, which may favor chicken meat sales, since prices for this animal protein are usually lower than that for beef and pork meat.
According to the Focus Report released on December 31, 2020, the Brazilian economy should grow 3.4% in 2021. However, the high unemployment rate and the end of the emergency aid paid by the federal government may constrain family income, primarily in the regions with high poverty rates. This scenario may favor chicken meat sales.
According to projections from the ABPA, in 2021, the Brazilian production of chicken meat should increase by around 5.5% compared to that estimated for 2020, to 14.5 million tons. Consumption per head is forecast at 47 kilos, 4.4% up from that estimated in 2020 (45 kilos).
As regards exports, although China (the top purchaser of the Brazilian meat) is trying to increase its chicken production, in 2021, the Brazilian exports to this destination should continue on the rise.
Besides, other countries are expected to increase purchases, such as Japan, Brazil’s third biggest commercial partner in this segment, which will host the Olympic Games in 2021 – it is worth to consider that if the covid-19 pandemic becomes worse along the year, the event may be cancelled. Data from the USDA point to an increase of 2.1% in the Brazilian exports compared to that in 2020.