Slowdown Hits Again

After the price recuperation that began in May, in June prices stabilized at around break-even, and now in July a slow decline has set in. This seems to be a result of low demand in both domestic and international markets.

June pork exports were yet another disappointment for the industry. At 40,626 metric tons, they were 7.5 per cent below the same month in 2012. And in the first half of the year, sales were 240,515 metric tons, a full 10.5 per cent below the equivalent figure for 2012.

But ABIPECS, the association of pig exporting plants, is spreading optimism. Its president, Rui Eduardo Saldanha Vargas, explains that the Ukraine market, which was closed to Brazil in March, reopened in mid-June. This is the major reason for the poor figures in the first half of the year, and is why the second half should be better, he says. Ukraine’s imports in the first six months of 2013 were 25,385 metric tons, representing a fall of 60.8 per cent over the same period last year.

With the closing of the Ukraine market, Russia became the main destination of Brazilian pork this year, taking 28.7 per cent of total exports, followed by Hong Kong with 25.3 per cent. Rui Vargas also believes that the Japanese market could become important in the short, medium and long terms, now that it has partially opened to Brazilian exports.

Well, if optimism could pay the bills, pig producers would be smiling from ear to ear. As we know, it is what has kept (some of) them going for the last five years!

The survey of pig prices in the state of Rio Grande do Sul, conducted by this author since 2004, has now been taken over forcibly by the state pig association, by the simple expedient of telling its members not to give information on prices! The association does not divulge how the numbers are processed, so it is impossible to know how the weekly figures it divulges correspond to the figures produced by the previous report.

But, for what it is worth, the association’s survey for this week shows a price of R$2.66 (US$1.18) per kg live weight. Embrapa, a government agricultural research agency, published cost of production figures for June, showing a cost of R$2.69 per kg live weight to produce a 110-kg market hog.

Which demonstrates that, really, optimism is the only profit the producer has!

In January of this year, the cost of production figure was R$3.00, so over six months it has fallen by 34 cents of a real (the Brazilian currency). Most of this decrease (21 cents) has been generated by lower feed costs, due to the good harvests of corn and soy beans taken in during the first months of the year, bringing the prices of these basic ingredients down from the critical levels they had reached.

There is not a lot of optimism in the air for the general trend of the Brazilian economy, as shown by the massive popular protests that took place in June, when literally millions of people came out spontaneously onto the streets to express their dissatisfaction. There is a new generation of young people, with more access to education than many of their parents had, and much higher expectations of a decent life. And they are all interconnected via their cellular phones, with Facebook, Twitter and other social networks.

The protests were somewhat diffuse and permitted no participation by political parties, as these were certainly among the intended targets. But among the reasons for this popular uprising can be detected: concern about the blatant corruption of all political parties, rising inflation, first world taxes and third world services for health, education, public security and anything else the government has the duty to provide, and the fact that the government decided to spend billions of dollars to build fine football stadiums to host the World Soccer Cup next year when people die in hospital lines waiting to be attended. This seen by many as a questionable decision, especially as a good part of the billions will end up in the pockets of the politicians.

It is not a scenario that encourages high investments, particularly in an activity such as pig production that has not shown a return for many years. So it is hard to believe that Brazilian pig production, at least at the level of the independent producer, will be expanding in the near future.