Brazilian Markets - May 2011

by 5m Editor
26 May 2011, at 10:29am

BRAZIL - The Brazilian roller coaster rolls on, continuing its wild and unpredictable ride! The last Brazilian market report, at the end of March, was optimistic, with prices rising strongly, writes Martin Riordan, Sales and Service, Genesus Brazil.

But then the tide turned, and since the beginning of April, prices have been falling sharply across the country.

This can be seen partially in the chart, which is based on data from CEPEA, a market research body linked to the University of São Paulo.

The chart shows pig prices in the five major producing states in Brazil. It clearly shows how the two states of Minas Gerais (MG) and São Paulo (SP) constantly outperform the three southern states in terms of price. This is because, in those two states, there is still an active market for hogs, with many producers and many buyers.

However, the industry in the south is dominated by the big integrations, now ruled by Brazil Foods, which incorporates what were previously three big companies, Sadia, Perdigão and Avipal. As Brazil Foods, they have upwards of 400,000 sows.

In this situation, the market for independent hogs is limited. The big companies are self-sufficient in production, and recently the few remaining independent producers in our state, Rio Grande do Sul (RS), complain of a total lack of buyers. Even at low prices, they cannot move their hogs. After a transition period of some ten years, this would appear to be the final death-knell for independent production in this state.

The chart also shows that, after a period of high prices in November 2010, there was a constant collapse until March, when prices started picking up. But this was short-lived, with prices quickly stabilizing in April, and since mid-April the collapse began again (not shown on the chart).

Once again, the question: what explains this? Well, Brazilian exports have been mediocre this year and what had been sustaining prices (or stopping them falling further) was the domestic market. But over recent weeks, this too has held back, probably due to falling beef prices. Brazilians in general prefer to eat beef, and only move to pork to keep the total meat bill within their budget. With high beef prices earlier in the year, the pork market rebounded. Now that beef has fallen, the pork market has slumped.

Prices in the south of Brazil are now around US$ 1.34 per kg live weight, while production costs are about US$ 1.60. So a market hog brings a loss of nearly US$30. And the immediate price tendency seems to be downwards. Some producers in RS reported during the week of May 16 that they couldn’t find buyers at US$ 1.18. Well, not selling, technically they don’t make a loss, but, as we know, their dilemma is much worse. No money coming in to buy feed for more hogs than they should have. Those who have been there know how heart wrenching this is.

The chart shows export performance over the last 12 months, in terms of volume and income. It can be seen from the volume bars that a decline began in October last year which only reversed in February this year, and slowly. There seems to be a trend of rising volume - it remains to be seen if this will continue. The blue income line shows a rising income in US$, indicating higher prices. But over this period the Brazilian currency has appreciated against the dollar, which means that in local currency the increase has been much less. And not enough to prevent the severe fall in hog prices.

On 11 April, the President of Brazil, Dilma Rousseff, arrived in China on an official visit, and within a few hours it was announced that China would begin to import pork from Brazil. This is an important break-through, but as yet has made no noticeable impact on domestic prices. As usual, there will be a period of discovery, trying to work out what real effect it will have. So far, only three plants have been approved by the Chinese, and the talk is of 200,000 tonnes over 5 years. It will obviously help the market in the medium term, but is not a magic wand to solve present problems. First shipments are expected to go in the final quarter of 2011.

Feed prices have fallen slightly, but not significantly, once again not bringing hope to the beleaguered producers. Different regions of Brazil show different results. In the Center West, corn has been harvested recently, and export prices have fallen, allowing prices to drop slightly. But in the south, prices have held steady, bringing no relief.