Low supply and firm demand may continue to underpin prices in 2020

Cepea, January 15, 2020 – CATTLE – The Brazilian cattle market is expected to continue firm this year. Perspectives are based on the low supply of animals to be slaughtered and the possible maintenance of the high international demand. Thus, in order the meet the demand for animals for slaughter, productivity will have to increase.

 

In 2020, the Focus Report, released by the Central Bank of Brazil on December 30, estimates the Brazilian economy to grow 2.3%. Besides, the inflation is forecast to be controlled and the interest rate, low, which may attract new investments in production and boost demand.

 

As regards animal availability, supply is low in all the regions surveyed by Cepea. In general, this scenario reflects the growing female slaughter in recent years. Besides, low price levels between 2017 and early 2019 discouraged part of the cattle farmers, which halted investments in the last years. Thus, calf prices should continue firm in the next couple of years.

 

The demand for beef, in turn, is expected to increase around 2%. However, the current price levels for this type of meat may lead part of the purchasers to opt for cheaper animal proteins, such as pork and broiler.

 

In the international market, African Swine Fever (ASF) outbreaks in China may keep their imports of the Brazilian beef at high levels. The strong US dollar, in turn, should continue to encourage exporting slaughter facilities to close deals with the international market. It is worth to mention that, in November 2019, new Brazilian slaughterhouses were certified to export meat to China, and for 2020, new markets may be open to the Brazilian beef, such as Indonesia.

 

Thus, agents from the sector believe that Brazilian beef exports should continue higher than 100 thousand tons per month, which has been observed since July 2018, according to data from Secex.

 

PRODUCTION COSTS – Perspectives point to an increase in the production costs of beef cattle farming in 2020, mainly due to low calf supply and the consequent price rises for these animals – it is worth to mention that calf quotes account for more than half of the expenses within a backgrounding farm. Besides, the current scenario indicates corn prices may continue firm in the domestic market, due to the record exports in 2019, among other factors.

 

HOG – Players from the hog sector in Brazil expect that the good results registered in 2019 continue this year because of the global production decrease. The reduction, in turn, is caused by cases of African Swine Fever (ASF) in Asia, which is likely to remain favoring the Brazilian meat market.

 

According to data from the USDA, the world swine production may move down 10% in 2020 compared to the previous year, mainly because of the supply decrease in China (sharp 25%), Philippines (16%) and Vietnam (6%). On the other hand, the Brazilian production is forecast to increase 5% from 2019 to 2020. The USDA also indicates a 15% increase in exports from Brazil. 

 

In this scenario, the good relationship with Asian countries may continue to favor Brazil. Data from Secex indicates that, from January to November 2019, the volume of Brazilian pork sold to China increased 40% compared to the year before. This country is the major partner of Brazil in this market, purchasing 33% of the product up to November 2019.

 

In the domestic market, the macroeconomic sector is likely to be favorable this year, which may sustain current consumption levels. The Focus Survey, released by the Central Bank, projects a 2.3% increase in the Brazilian economy in 2020.

 

Other factors that may increase the pork consumption are high beef price levels. In this scenario, consumers tend to search for other protein sources, at more competitive prices.

 

Although perspectives are positive, different possible scenarios for the grains market bring concerns for players. Uncertainties regarding the international demand and possible trade agreements between China and the US may result in opposite trends for soybean meal and corn values.

 

POULTRY – Despite expectations for an increase in production, the demand for chicken meat should continue high in 2020, which may underpin quotes along the year. Recent price rises for beef and pork meat in Brazil tend to favor broiler consumption in the domestic market. Abroad, African Swine Fever (ASF) outbreaks, mainly in China, should continue to favor Brazilian sales.

 

According to a report from the USDA, the world broiler production is expected to increase 4% in 2020, to the record level of 103.5 million tons, and surpass pork meat production – so far, the most consumed type of animal protein in the world. In Brazil, broiler production is expected to grow around 2.5%.

 

Still according to the USDA, Brazilian broiler exports should increase 5% this year. In the first 11 months of 2019, shipments were only 1% higher than that in the same period last year. Although Saudi Arabia, Japan and South Africa – Brazil’s important commercial partners – reduced imports, China, the most affected by the ASF outbreaks, purchased 509.2 thousand tons of the product, 16% more than that last year and a record, considering Secex series, which started in 1997.

 

In 2019, the domestic poultry sector was aware of the ASF outbreaks in China, where many sick pigs had to be killed, which boosted the Brazilian sales of broiler meat. Thus, China has been the number one destination for the national broiler since February 2019, surpassing Saudi Arabia.

 

Even if Brazil maintains a good commercial relation with China, the country should try to close new partnerships with other markets. In 2019, political issues between Brazil and Arabic nations – important purchasers of the Brazilian broiler meat – concerned national exporters.

 

(Cepea-Brazil)

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