Report Highlights:

Post forecasts both beef and pork production to continue to increase in 2016 to 9.6 million metric tons and 3.6 million metric tons, respectively. The increase in production is mostly driven by higher exports due to the depreciation of the Brazilian currency. In the domestic market, both animal proteins are suffering the impact of the current economic recession in the country and reduced purchasing power of consumers. Higher feed costs will likely reduce profitability in 2016.

Executive Summary:

The outlook for the Brazilian economy in 2016 is to continue in recession with another major drop in the Gross Domestic Product (GDP), rising inflation and unemployment. Domestic demand for animal proteins continues to feel the impact of the lower purchasing power of consumers, of which beef consumption is the most affected due to higher beef prices and competition from other meats, mostly chicken and to a lesser extent pork. On the positive side, Post expects higher exports of both beef and pork in 2016 due to the depreciation of the Brazilian currency (38% in the past twelve months) and new markets opened recently. The export outlook for 2016, however, can be tempered by the continued impact of the lower oil prices in some of the most important Brazilian markets for beef, such as Russia and Venezuela. In addition, higher feed costs, mostly high-priced corn in 2016 can impact on pork production. Small revisions in the 2015 S&D for beef and pork were made to incorporate final export data.

Animal Numbers, Cattle

Production:

Post forecasts a continued outlook of limited cattle supplies for slaughter in 2016. This is the result of two factors: high slaughter of cows in 2013-14 and insufficient volume of rains for nearly three years that is affecting the most important cattle producing areas in the center-west region. In addition, the price of calves reached a record price in May 2015 at approximately US$ 506 stimulating retention of animals by Brazilian producers. Finished cattle prices also reached an all-time record in April of 2015 at US$ 53 per “arroba" (each arroba equals 15 kilograms or 33 lbs). Cattle producers also complain that the devaluation of the Brazilian currency also contributes to their loss of profitability because of the increased costs of inputs (genetics, medication, feed ingredients) that are normally imported.

Trade:

Post revised our estimates for cattle exports in 2016 to increase by 50 percent. Exporters believe that the devaluation of the Brazilian currency, combined with new markets can offset reduced demand from Venezuela. Brazil reached sanitary agreements for cattle exports with Jordan, Turkey, Iraq and Bolivia, and it is close to reaching other agreements with Vietnam, China, Malaysia and Mauricio Islands.

A major constraint for cattle exports since the last quarter of 2015 was the incident on October 6, 2015 with a Lebanese ship that wrecked in the Port of Vila do Conde, state of Para, in the Amazon River, with more than 5,000 animals, of which an estimated 3,000 animals died, causing a major environmental impact in the area. This port is responsible for about 95 percent of all cattle exported from Brazil and there are reports that as of early 2016, more than 50,000 animals are still waiting to be exported in the region.

Animal Numbers, Cattle

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Brazil

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Total Cattle Beg. Stks

207959

207959

213035

213035

219093

219180

Dairy Cows Beg. Stocks

38600

38600

38980

38980

39290

39290

Beef Cows Beg. Stocks

53660

53660

54210

54210

55025

55025

Production (Calf Crop)

49600

49600

48220

48220

48250

48250

Total Imports

10

10

3

2

3

3

Total Supply

257569

257569

261258

261257

267346

267433

Total Exports

649

649

300

212

300

300

Cow Slaughter

10585

10585

10600

10600

10500

10500

Calf Slaughter

350

350

300

300

300

300

Other Slaughter

29450

29450

27465

27465

27900

27920

Total Slaughter

40385

40385

38365

38365

38700

38720

Loss

3500

3500

3500

3500

3500

3500

Ending Inventories

213035

213035

219093

219180

224846

224913

Total Distribution

257569

257569

261258

261257

267346

267433

(1000 HEAD)

Meat, Beef and Veal

Production:

Post forecasts beef production to rebound in 2016 and increase by around two percent to 9.6 million metric tons (MT/CWE), mostly driven by an estimated 10 percent increase in beef exports. Limited supplies of cattle for slaughter and high cattle prices will also continue to pressure packer's profit margins in 2016, which has been ameliorated by the significant devaluation of the Brazilian currency. Because of high cattle prices in Brazil, packers closed more than 30 plants in several states mostly because their margins reached critical levels. The state of Mato Grosso, which has the largest cattle herd in the country, closed 9 plants that were operating at idle capacity due to the limitation of cattle supplies. The outlook for calf production is expected to improve only in 2017.

Consumption:

Post projects domestic beef consumption to remain stagnant in 2016 at 7.8 million metric tons (MT/CWE). High retail prices of beef cuts combined with the drop in the purchasing power of Brazilian consumers is forcing consumers to switch to other meats, such as chicken and to a lesser extent pork. In 2015, the difference between retail beef cuts and chicken was above 60 percent higher for beef.

Trade:

Beef exports are expected to rebound in 2016 at a rate of nearly 10 percent to nearly 1.9 million metric tons (CWE), mostly driven by the devaluation of the Brazilian currency and higher demand from Asia. The Brazilian currency was devaluated by 38 percent in the past twelve months (ending in February 2016) making the Brazilian product more competitive in the world market and allowing beef packers to improve their revenues. Brazilian exporters also believe they will benefit throughout this year with the current lower cattle availability for slaughter both in the United States and Australia. They also do not see Argentina yet prepared to compete with Brazil in the short run (2 to 3 years). Promotional activities for beef are concentrated in Russia, Asia and Middle-East. The following is a brief summary of the main “drivers" that are helping beef exports in 2016:

China. Our trade contacts are optimistic that beef exports will significantly increase to China this year after the reopening of the market and the significant increase in the number of beef plants authorized to export to China. According to our trade source; the potential for beef exports to China in 2016 is nearly 200,000 metric tons per year.

Hong Kong: Local traders expect Hong Kong to continue as a major importer of Brazilian beef, but at lower levels than in the past. Meantime, Brazilian exporters believe that the decline in beef exports to Hong Kong in 2015 was due to the increased Chinese surveillance over meat trade to avoid “triangle" operations.

Russia: Local trade sources are more cautious about the Russian market in 2016 due the economic crisis, devaluation of the Ruble and lousy oil prices. However, because of the estimated lower beef stocks in Russia, Post was informed that the Russian Federation will likely regain market share as the largest market for Brazilian beef in 2016. Last year, Russian officials increased by over 100 percent the number of Brazilian plants approved to export to that country.

Saudi Arabia and Japan: These two countries were the last ones to reopen their markets to Brazilian beef since the outbreak of Bovine Spongiform Encephalopathy (BSE) in Parana in late 2012. Japan reopened the market for processed beef, while Saudi Arabia reopened for fresh beef..

United States: Brazilian beef exporters hope to begin exports of fresh and frozen beef to the United States in the second half of 2016. Currently, government officials from both governments are working on the certification requirements. Meanwhile, trade sources indicate that exports of processed beef to the United States will increase in 2016.

Other markets: South Africa, Iraq, Iran, Malaysia, Myanmar and Singapore not only resumed beef imports from Brazil, but mutual negotiations between these countries and the Brazilian government are centered in the eligibility of new Brazilian plants for exports. Other negotiations to open market access for Brazilian beef are concentrated in Thailand, Taiwan and Indonesia.

Market Investments: At the end of 2015, the state-owned Saudi Agricultural and Livestock Investment Company (SALIC), acquired nearly 20 percent of Brazil's third largest beef packer and third largest beef exporter called MINERVA. The company is also the largest exporter of Brazil's cattle. The value of the investment is estimated at US$ 186 million. MINERVA has a significant market share in the middle-east market for fresh beef and this new partnership will strongly support their expansion in the area. In addition to Minerva, JBS and Marfrig have consolidated among themselves as the meat largest big packers in Brazil

Meat, Beef and Veal

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Brazil

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Slaughter (Reference)

40385

40385

38365

38365

38700

38720

Beginning Stocks

0

0

0

0

0

0

Production

9723

9723

9425

9425

9600

9645

Total Imports

82

82

70

61

65

50

Total Supply

9805

9805

9495

9486

9665

9695

Total Exports

1909

1909

1625

1705

1775

1875

Human Dom. Consumption

7896

7896

7870

7781

7890

7820

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

7896

7896

7870

7781

7890

7820

Ending Stocks

0

0

0

0

0

0

Total Distribution

9805

9805

9495

9486

9665

9695

(1000 HEAD) ,(1000 MT CWE)

Export Trade Matrix

Country

Brazil

Commodity

Meat, Beef and Veal

Time Period

Jan-Dec

Units:

Metric Tons

2014

2015

U.S.

21,245

U.S.

30,052

Others

Others

Angola

22,770

14,513

Algeria

20,930

19,880

Canada

3,083

1,767

China

106

97,478

Chile

55,210

54,894

Egypt

156,793

181,217

European Union

114,736

109,099

Hong Kong

252,704

165,909

Iran

61,178

97,792

Iraq

80

0

Israel

11,030

15,329

Lebanon

15,550

14,194

Libya

13,880

5,900

Japan

8

0

Jordan

11,194

12,206

Palestine

5,874

11,664

Phillippines

13,655

12,241

Russian Federation

310,264

169,511

Saudi Arabia

50

0

Singapore

11,563

15,737

Ukraine

335

0

UAE

16,105

16,870

Venezuela

170,187

93,905

Total for Others

1,267,285

1,110,106

Others not Listed

45,329

47,469

Grand Total

1,333,859

1,187,627

HTS:0201,0202,021020,160250

Quantity in Product Weight Equivalent (PWE)

Updated: February 1, 2016

Animal Numbers, Swine

Production:

Post forecasts hog production to increase by one and half percent in 2016 to support higher pork exports and domestic demand. Nearly 60 percent of hog production in Brazil is concentrated in the three southern states of Brazil, of which Santa Catarina is the only state in Brazil free of Foot-and-Mouth Disease. Production in this region is basically vertically integrated. However, this region is depended on corn imports from other states and this may be one of the main constraints to temper producers' optimism this year. Corn prices have increased by over 60 percent over the past 12 months due to booming corn exports and producers are being squeezed as cost of producing hogs have increased significantly. The Brazilian government has reacted by selling corn from government stocks at subsidized prices. Although the current situation resembles the 2012 high feed costs for hog production, producers and packers remain optimistic with the pork outlook for this year, mostly due to higher exports.

Animal Numbers, Swine

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Brazil

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Total Beginning Stocks

38844

38844

39395

39395

40150

39422

Sow Beginning Stocks

2920

2920

2930

2930

2940

2940

Production (Pig Crop)

38470

38470

39050

39050

39635

39635

Total Imports

0

0

0

0

0

0

Total Supply

77314

77314

78445

78445

79785

79057

Total Exports

2

3

3

3

2

2

Sow Slaughter

150

150

160

160

160

160

Other Slaughter

36650

36650

37040

37768

37460

38522

Total Slaughter

36800

36800

37200

37928

37620

38682

Loss

1117

1116

1092

1092

1088

1150

Ending Inventories

39395

39395

40150

39422

41075

39223

Total Distribution

77314

77314

78445

78445

79785

79057

(1000 HEAD)

Meat, Swine

Production:

Post increased our forecasts for an increase of two and half percent in pork production in 2016, at 3.6 million metric tons (MT/CWE). This forecast reflects the current optimism of the pork industry with the continued upsurge in the export markets and an increase in domestic demand.

Consumption:

Post maintains our forecasts for domestic consumption of pork to continue to increase in 2016 and reach 2.9 million metric tons (MT/CWE), as Brazilian consumers will likely remain price conscious in 2016 due to firm market prices for pork, more competitive than beef, but less than chicken. In 2015, pork prices were more competitive than beef by approximately 10 percent, but higher than chicken prices by 7 percent. Packers believe that these conditions will likely prevail in 2016.

An intense marketing campaign in the past years has improved fresh consumption of pork, but pork utilization in Brazil is estimated at 67 percent for industrial/processing and only 33 percent for fresh consumption. Promotional activities in Brazil are trying to address constraints affecting fresh pork consumption, such as a concentration during the winter months (June-August) and regional concentration of pork consumption in the southern regions of the country

Trade:

Brazilian pork exports are forecast to increase by 6 percent in 2016 supported by the devaluation of the Brazilian currency of 38 percent in the past twelve months and firm exports of pork to Russia and China. Brazilian negotiators were able to increase the number of plants approved to export pork to these countries. In addition, exporters expect exports to increase to Angola, Japan, Mexico and Singapore next year as the Brazilian product becomes more competitive in these markets.

After ten years of negotiation, South Korea opened the market for Brazilian pork, and according to Brazilian officials, the potential of exports to South Korea is 35,000 metric tons per year. Brazil also opened the market for pork in South Africa.

Meat, Swine

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Brazil

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Slaughter (Reference)

36800

36800

37200

37928

37620

38682

Beginning Stocks

0

0

0

0

0

0

Production

3400

3400

3451

3519

3510

3609

Total Imports

2

1

1

1

1

1

Total Supply

3402

3401

3452

3520

3511

3610

Total Exports

556

556

565

627

580

670

Human Dom. Consumption

2846

2845

2887

2893

2931

2940

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

2846

2845

2887

2893

2931

2940

Ending Stocks

0

0

0

0

0

0

Total Distribution

3402

3401

3452

3520

3511

3610

(1000 HEAD) ,(1000 MT CWE)

Export Trade Matrix

Brazil

Meat, Swine

Time Period

Jan-Dec

Units:

Metric Tons

Exports for:

2014

2015

U.S.

35

U.S.

288

Others

Others

Albania

5,839

3,108

Angola

40,623

27,217

Argentina

7,934

10,889

Armenia

4,704

4,171

Azerbaijan

1,895

4,256

Chile

8,078

8,274

China

842

5,225

European Union

793

202

Georgia

8,410

7,288

Kazakhstan

813

482

Kyrgyzstan

1,763

877

Hong Kong

71,770

90,447

Japan

4,214

2,234

Moldova

5,733

640

Philippines

1,838

612

Russian Federation

185,936

236,527

Singapore

32,276

28,028

UAE

4,592

4,814

Ukraine

5,490

79

Uruguay

20,118

21,660

Venezuela

4,098

9,949

Total for Others

417,759

466,979

Others not Listed

10,164

14,962

Grand Total

427,958

482,229

HTS: 020311,020312,020319,020321,020322,020329,

and 021011,021012,021019,160241,160242,160249

Quantity in Product Weight Equivalent (PWE)

Updated February 1, 2016