Has the Chinese demand for the Brazilian beef reached its limit?

Cepea, June 16, 2021

 

CATTLE – The Brazilian exports of in natura beef have been fast in 2021, underpinning the domestic prices for fed cattle and beef carcass. This year (until May), national beef shipments have been a slight 2.9% down from that in 2020 – when the volume exported was a record for the period –, but 2.55% up from that between January and May 2019.

 

This good performance continues linked to the high demand from China. According to data from Secex (Foreign Trade Secretariat), between January and May 2021, China purchased 317.08 thousand tons of the Brazilian beef, 10.3% more than the volume imported in the same period last year and a staggering 151.6% up from that in 2019.

 

However, from May 2020 to May 2021, Brazilian beef exports to China decreased sharply, by almost 20%, from 83.9 thousand tons to 67.3 thousand tons (Secex). Between December 2020 and May 2021, shipments to China decreased even more: by 24% (in Dec/20, the Asian country imported 88.6 thousand tons of the Brazilian beef).

 

This decrease has been concerning agents in the Brazilian cattle sector. Some of them are wondering whether the Chinese demand for the national beef has reached its limit. The recovery of the pig herd in China may indeed have constrained meat purchases in the international market. According to information released today by the Ministry of Agriculture and Rural Affairs, the Chinese pig herd increased by 23.5% between May/20 and May21.

 

In the last years, Brazilian exports were concentrated in China. Of all the beef shipped this year, 44% were sent to the Asian country, according to Secex. In 2020, China imported 39% of all the Brazilian beef exported.

 

Besides, the recent dollar depreciation against the Real has constrained the revenue received by Brazilian slaughterhouses in Real. On the other hand, the price paid by China for the Brazilian beef has increased, bringing some relief to agents. According to Secex, in May, China paid 5.1 USD per kilogram for the national product, 3.11% up (15 cents of dollar) from that in April and 4% more (20 cents of dollar) than that paid in May last year.

 

BRAZILIAN MARKET IN JUNE – In the domestic market, the low supply of animals for slaughter and the fast exports pace for beef have been underpinning fed cattle prices. On Tuesday, 15, the CEPEA/B3 Index for fed cattle closed at 317.35 BRL (62.93 USD) per arroba (15 kilograms), a slight 0.38% up from that on May 31.

 

SWINE – Price gap between pork meat and beef is the widest in all times in BR

 

With the steep price drops for pork meat between late May and early June, the competitiveness of this protein against its major competitors in the Brazilian market (beef and chicken meat) increased in the first fortnight of June, and the price gap between pork meat and beef is the widest in all times.

 

According to Cepea calculations, in the first half of June, special pork carcass was 10.88 Reais per kilogram cheaper than beef carcass, on average, both traded in the wholesale market of the Greater São Paulo. This price gap is 0.7% wider than that registered in May and a staggering 40.7% wider than that in June/20. Compared to whole frozen chicken, special pork carcass was 2.68 Reais/kg more expensive in that period, on average, meaning that the price gap between these products is 27% narrower than that in May, but still 25.5% wider than that in June/20.

 

Prices for pork meat have been low this month, due to the higher supply of animals for slaughter amid weak demand, majorly in the Brazilian market. The average price for special pork carcass in the first fortnight of June closed at 9.50 BRL/kg in the Greater São Paulo, 4.7% down from that in April, but still 51.1% up from that in June last year, in nominal terms.

 

SLAUGHTER – According to the Quarterly Survey of Animal Slaughter from the IBGE (Brazilian Institute of Geography and Statistics), in the first quarter of 2021, the number of pigs slaughtered in Brazil increased by a staggering 5.7% compared to that in the same period last year, totaling 12.62 million heads.

 

In March/21, 4.57 million pigs were slaughtered in Brazil, 10.6% more than that in March 2020 and a record in the series of the IBGE, which began in 1997. It is worth to mention that, in March/21, data from Cepea showed that prices dropped sharply, but the fast exports pace at that time offset devaluations.

 

Carcass weight has increased too, after having decreased in the last quarter of 2020. Between January and March 2021, the average weight for pork carcass was 91.6 kilograms, 2.1% up from that in the previous quarter.

 

EXPORTS – The sharp increase in the Brazilian pork exports in May was linked to the higher volume sent to China, since Brazil’s other major partners, such as Chile and Singapore, reduced purchases. From April to May, exports to China increased by 5.2%, totaling 54.2 thousand tons in May. This volume accounts for 53.8% of all the Brazilian pork meat exported in May, 0.8 percentage point up from that in April.

 

POULTRY – Sales of chicken meat increase in Brazil, and prices rise

 

Chicken meat sales increased in the Brazilian market in the first fortnight of June, boosted by the higher demand for the product, largely because of the payment of workers’ wages early in the month. As agents from the poultry sector had been working with low inventories, higher demand pushed up prices in the sector, majorly for the meat.

 

It is worth to mention that, despite the recent valuations, chicken meat prices continue lower than that for beef and pork meat. Besides, the current high production costs – because of the valuations for corn and soybean meal – and higher expenses with electric power are pressing down the profit margins of poultry farmers.

 

EXPORTS – In May, the Brazilian exports of chicken meat (in natura) hit the highest volume since July 2018, according to data from Secex (Foreign Trade Secretariat). Besides the increase in the amount shipped, the valuation of the product exported favored revenue, offsetting the recent dollar depreciation against the Real.

 

According to Secex, in May, Brazil exported 383.2 thousand tons of chicken meat (in natura), 5.6% up from the volume shipped in April and 2.9% up from that in May 2020.

 

The increase in the volume exported last month surprised agents from the poultry sector, who feared shipments could decrease, since Saudi Arabia, one of the top destinations for the Brazilian chicken meat, suspended imports from 11 Brazilian slaughterhouses.

 

However, it is worth to mention that this measure took effect on May 23, and, thus, the effects of the ban may be observed in the coming months if the volume that was being exported to Saudi Arabia is not purchased by other destinations.

 

(Cepea-Brazil)

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