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Chinese purchases from Brazil create optimism and alerts

China is an important commercial partner to Brazil, and its share in the Brazilian exports of agricultural and livestock products increased in the last months. According to Cepea surveys, between January and April 2020, slightly over 37% of all the volume (agribusiness) Brazil exported was sent to China. As a comparison, in the first four months of 2019 and 2018, the Chinese share in the Brazilian exports of agricultural and livestock products was at 30%.

 

Considering beef, according to data from Secex, in May/2020, 65% of the all the volume Brazil exported was sent to China and Hong Kong – in May/2019, that percentage was at 40.7%. The percentage registered in May (65%) was the highest monthly share related to a single destination.

 

Up until then, the highest share registered for China and Hong Kong (altogether) in a single month had been registered in December 2019, when 63.3% of the 173.64 thousand tons shipped by Brazil were sent to these destinations.

 

The share of China and Hong Kong (altogether) in the Brazilian beef shipments raise optimism to the national cattle sector, primarily at the current moment, when the purchase power of the population is weak in Brazil. The good exports performance has been underpinning fed cattle prices in Brazil, which have been firm this year, at around 200.00 BRL – this price level brings some relief to cattle growers, since production costs are on the rise (strong dollar, calf prices at record levels and high corn quotes in Brazil), allowing cattle growers to plan investments for the second semester.

 

Brazilian beef exports are favoring the performance of the national cattle sector as a whole. Cepea calculations in partnership with CNA indicate that, in the first quarter of 2020, the GDP for this sector increased by a staggering 6.11%, against 1.91% in the agricultural sector. In light of that, the GDP for the Brazilian agribusiness increased by 3.29% in that period.

 

On the other hand, the strong dependence on China and Hong Kong raises an important alert: exports that are concentrated in a single destination are vulnerable to health of political-economic issues.

 

In 2017, for instance, Russia purchased 40% of all the pork meat Brazil exported and 11% of the beef. At the end of that year, the country suspended imports of both products from Brazil, claiming health issues. Although the commercial relation between Russia and Brazil was important, the ban lasted time enough to lead to significant losses, primarily to Brazilian hog growers and industries.

 

Thus, this is an important moment for Brazilian meat processors to try and increase/diverse the countries that import the national product. However, the current world crisis linked to the coronavirus pandemic tends to hamper new partnerships. On the other hand, the Brazilian beef is competitive, favored by the strong dollar. Besides, the African swine fever (ASF) outbreaks in Asia and in some countries in Europe and Africa and the recent foot-and-mouth disease may boost the international demand and attract new purchasers to Brazil.

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