This year looks brighter, but challenges remain

Cepea, January 12, 2018 – CATTLE – After a turbulent year, the Brazilian cattle sector started 2018 more optimistic, but still careful. In general, a more favorable economic scenario is expected for both the international and domestic markets this year, which may favor the entire beef chain. For the global market, estimates point to good economic growth in many countries, which may lead to fewer trade barriers, widening commercial possibilities or even developing new ones for the Brazilian beef, keeping the upward trend of exportations.


The Brazilian economy is expected to bounce back and grow, mainly due to lower interest rates, inflation control, exchange rate stability, lower unemployment rates and higher GDP (Gross Domestic Product). This context favors consumption and higher demand for meat, mainly beef, which is more sensitive to increases of revenue.


Domestic consumption, therefore, should increase this year. The Brazilian GDP is forecast to grow 2.7% (Central Bank estimates at the end of 2017). Cepea estimates domestic beef consumption to increase 2.2%.


SWINE – Cepea data show that domestic pork consumption may increase 1.63% in 2018, accounting for 49.6 thousand tons above estimates for 2017. Higher demand is based on a more conservative scenario forecast by the Brazilian Central Bank for the GDP (Gross Domestic Product), 0.62% up in 2018. On farms, however, Cepea forecasts a 2.38% increase for pork output. Thus, the surplus eligible for exportation would be 5.27% higher this year than in 2017. Therefore, challenges for 2018 involve increasing the number of destinations for the Brazilian pork in the international market.


If pork consumption rises more, however, the surplus eligible for exportation may decrease. Thus, based on another growth estimate from the BCB, at 2.53%, Cepea calculations point to a domestic consumption 2.85% higher, or 86.8 thousand tons more than in 2017 (and 51 thousand tons more than in the first scenario). In this context, despite the larger output, the surplus eligible for exportation in 2018 would be only 0.54% higher than in 2017.


In 2017, the main importers of Brazilian pork were Russia, Hong Kong and China, which, altogether, accounted for 68.4% of all the volume exported until November. For 2018, according to estimates from FAO (Food and Agriculture Organization), China importation pace should be slower. The recent embargo from Russia to the Brazilian pork brought some uncertainties to the sector regarding the volume to be shipped to that country in 2018. Estimates indicate that, in 2016, of all the volume imported by Russia, 93% came from Brazil.


For this year, the Brazilian swine sector expects to be recognized as free of the foot-and-mouth disease through vaccination, to be announced in the annual meeting of the World Organization for Animal Health, in May 2018. This new sanitary status should contribute to the widening of destinations for the Brazilian pork in the international market, improving the whole chain in the long-term.


POULTRY – Cepea calculations indicate that the Brazilian broiler production may increase 3.34% in 2018, compared to the previous year. Demand should rise from 1.32% to 1.57%, depending on the pace of economic recovery and a broiler surplus is expected in Brazil in 2018. Thus, once again, the sector will strongly rely on exportations, highlighting the need of the Brazilian sector to continue to comply with health requirements demanded by importers.


In a conservative scenario, the Brazilian Central Bank estimates broiler consumption to increase 1.32% in 2018. Thus, the ratio production/domestic consumption would lead to a surplus increase of 7.4% eligible for exportation in 2018. If this surplus is absorbed by the international market, it may account for 34.5% of the Brazilian production.


In a more positive scenario estimated by the BCB, Cepea forecasts demand to move up 1.57% in 2018, increasing surplus by 6.91%. Despite the lower increase in the surplus eligible for shipment in this second scenario, a significant percentage of the Brazilian output (34.33%) would be allocated to the international market.


Higher surplus in 2018, in turn, may be purchased by China. According to the USDA, Chinese broiler importations should rise 7% this year. Besides, cases of the avian flu in important players from the international poultry sector may allocate demand to Brazil. On the other hand, Brazilian exportations to Mexico are still uncertain, since the export quota (which allowed Brazil to supply Mexico) has expired and the sector is waiting for the renewal. In 2017, Mexico purchased 2.8% of all the volume that Brazil exported – last year, Brazil was the main broiler supplier to Mexico.


As for the flow in the domestic market, higher broiler competitiveness may warm up consumption in Brazil this year, due to lower prices in 2017. Besides, possible economic recovery tends to boost demand.