Porto Alegre, April 6, 2023 – March was a difficult month for Brazilian pig farming, considering the evolution of carcass and live animal prices, which fell sharply and ended up overshadowing the downward movement of the main feedstuff inputs, soymeal and corn. In other words, the pig farmers’ margins continued to deteriorate. On March 30, the average live kilogram traded in the Center-South of the country was BRL 6.12, down 10.98% from the closing of February, when the average was BRL 6.87. In São Paulo, the decline in cash was more intense than the average in the Center-South, reaching 14.48% in the same period of comparison, going from BRL 145 to 124 per arroba. In Minas Gerais, the decline was 20.73%, with a kilogram going from BRL 8.20 to 6.50.
The scenario for pig farmers is only not worse due to the downward trend in feedstuff inputs. Corn is under pressure in the country with the advancement of supply by producers. Warehouses across Brazil are full, and producers in many cases choose to retain soybeans and sell corn. Such an initiative does not result in favorable prices for soybeans, considering the record crop and that prices are formed from the inside out. Thus, both soybeans and corn are under pressure at the moment. In Campinas, the price of corn dropped 6% in March, going from BRL 91.00 to 85.50. The attached graph shows the evolution of the exchange ratio between a pork arroba and a corn bag in São Paulo. On March 30, the ratio was 1.45, that is, with the price of an arroba of pork one could buy 1.45 bags of corn. At the end of February, the ratio was 1.59. The decline in live pigs erased the positive scenario for the cost of farmers.
With regard to the pork chain prices, the main point is that final consumption evolves well while the prices of pork cuts are at low levels, favoring the drying up of stocks by retailers, and when they reach low levels, there is a more intense search for carcass and wholesale cutbacks, leading to rapid price reaction. When this occurs, the industry’s margin rises, and the search for animals for slaughter increases, favoring the increase in live animal prices. Prices along the chain show great sensitivity, so much so that an intense movement also occurs in the opposite direction, as evidenced by the current market moment.
When final consumers are faced with high prices, they start to opt for more affordable substitute proteins (such as chicken meat) and retailers start to “fight” over wholesale prices. With the decline in carcass and margins, industries start to put pressure on live animals. Historically, Brazilian pig farming has faced sharp ups and downs in the face of such sensitivity, as can be seen in the attached graph, which shows the evolution of the average price in the Center-South of the country since November 2020. One point to be considered is that sharp lows occur due to the history of Brazilian domestic availability, at high levels. If the supply of meat and animals were adjusted, such movements would be smoothed out. The abrupt lows bring great apprehension among independent pig farmers, even more so due to the prolonged period of the sector’s crisis.
An important point is that since the crisis began in 2021, the availability of pork in the Brazilian market has continued to grow, showing that the sector has not sought a forceful productive adjustment, delaying the exit of pig farmers and less efficient industries from losses. In the first quarter of this year, a decline in the average weight of live pigs in the country was evident, which certainly helps in the context of domestic availability, but the expectation is that they will rise again with the fall in the cost of animal nutrition, especially in the second half, with the arrival of the second-crop corn in the market, unless there is some climate change. Another adjustment that took place, but forcedly, was the bankruptcy of independent farmers over the past two years. Apart from these points, there was no great search for adjustments, such as the decline in births, so much so that slaughter must continue to grow this year.
The scenario for the second half of the year tends to be favorable for Brazilian pig farming, considering that demand tends to increase in winter until it reaches its peak during year-end festivities. In addition, the cost of animal nutrition tends to be pressured, with an increase in the supply of grain. Of course, the evolution of Brazil’s second-crop corn and the US soybean and corn crops must be closely monitored, especially the climate issue. The pig farmers’ margins may resume profitability, but caution about production is important, otherwise new negative situations may occur in the first half of 2024.
Two points may impact the Brazilian market in the second half of the year: the possible action of China in pork imports, and the degradation of the economic scenario. China continues to suffer from oversupply, reflecting the increase in production, a factor that may lead the country to act with less appetite for imports in the short and medium term.
Speculative news published in the market, such as the recent report by international agencies regarding ASF in China, must be investigated carefully before taking any decision related to production progress. Other news that brings rumors in the Brazilian market can be mentioned, such as possibly growing purchases of Brazilian pork by Russia and Canada rumored last year but not yet materialized. The sector in Brazil needs to take care of production levels and not make decisions in the heat of the moment due to rumors, with the risk of future losses.
Domestic demand will be fundamental for the evolution of prices in Brazil until the end of the year, and the economic scenario calls for caution. The level of household insolvency is high, and Brazilian GDP must rise by only 1.0%, showing signs of fatigue. Brazilian inflation is resistant even with high interest rates, driven by administered prices and other variables. High inflation is negative for demand at the final point, leading the population to be more prudent when buying. It is worth pointing out that pork is the third most preferred meat by Brazilians, just behind beef and chicken.
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