Report Highlights: 

Post forecasts 2015 production and exports of beef to increase by three and ten percent, respectively. This forecast is driven by greater availability of cattle for slaughter, stable domestic cattle prices, and the ongoing depreciation of the Brazilian currency. These factors will likely make Brazilian beef highly competitive in the world market. Pork production and exports are also forecast to increase in 2015 by five and 21 percent, respectively. Driving forces are lower feed costs due to record soybean and corn crops and higher exports due to the weaker Brazilian real and greater demand from the Russian Federation. In general, high indebtedness of Brazilian consumers is the main constraint for a smaller growth path for domestic demand for animal protein.

Executive Summary 

Most analysts forecast Brazilian economic growth to remain sluggish in 2015. Technically, the Brazilian economy has entered into recession and the effects of the current economic situation will impact next year’s GDP growth, estimated to rise at around one percent. Consumer prices are expected to be near the upper limit of the central bank’s inflation target band and consumer indebtedness will remain high. In view of this poor economic scenario, trade sources forecast weak domestic demand for animal protein, but they are optimistic about greater supplies of beef and pork for exports. In addition, a new federal administration will be sworn on January, 2015 and could implement policies correct economic disequilibria and promote stronger growth and lower inflation.

Animal Numbers, Cattle 

Production: 

For 2015, post forecasts an increase of over two percent in cattle inventories and nearly two percent in the calf crop. The expansion of the Brazilian cattle herd is supported by higher investments in productivity. Cattle producers have access to government programs at subsidized interest rates which encourage pasture improvements and higher use of quality genetics. In addition, due to sustained strong cattle prices throughout most of 2014, cattle producers have used more feed and other ingredients during the dry season (normally between May and September when pasture conditions are poor) to maintain cattle weights. In the past 6 months, the increase in feed for beef cattle reached a record of 3.9 million metric tons. It is also estimated that in 2014, cattle raising will attain a profitability rate of 18 percent, two points above the previous year. The estimated increase of 5 percent in feedlots will also likely contribute to larger cattle supplies next year. The sector is also benefiting from an estimated increase in cattle exports due to a weaker Brazilian currency. Finally, there is a possibility of a shift from corn production to investment in improved pastures during 2015 crop year due to lower prices of corn.

Trade: 

Post forecasts an increase of over two percent in cattle inventories and nearly two percent in the calf crop in 2015. The expansion of the Brazilian cattle herd is supported by higher investments in productivity. Cattle producers have access to government programs at subsidized interest rates which encourage pasture improvements and higher use of quality genetics. In addition, due to sustainable cattle prices throughout most of 2014, cattle producers use more feed and other ingredients during the dry season (normally between May and September when pasture conditions are poor) to maintain cattle weights. In the past 6 months, the increase in feed for beef cattle reached a record of 3.9 million metric tons. It is also estimated that in 2014, cattle raising will attain a profitability rate of 18 percent, two points above the previous year. An estimated five percent expansion in feedlots will also likely contribute to larger cattle supplies next year. The sector also is benefiting from an estimated increase in cattle exports due to a weaker Brazilian currency.

Meat, Beef and Veal

Production: 

Post forecasts that beef production in 2015 will increase by three percent, due mostly to international demand and a small increase in domestic consumption. The depreciation of the Brazilian currency combined with higher cattle supplies is likely to maintain Brazilian beef at competitive prices. Post also estimates an increase in carcass yields due to higher use of feed during the dry season. 

Consumption: 

Post projects domestic beef consumption to increase by1.2 percent in 2015 in view of an expected higher inflation rate combined with poor economic growth and higher market prices for beef. The rapid consumer credit growth in Brazil in the past years has been accompanied by escalating indebtedness of consumers. 

Trade: 

In 2015, post projects an increase of beef exports of 10 percent because stronger demand for the Brazilian product combined with the depreciation of the Brazilian currency which make the Brazilian product more competitive in the world market. Brazilian beef exporters are optimistic about the new “window” of opportunity for higher exports to the Russian Federation in the next 12 months, although this country is already the largest market for Brazilian beef, accounting for one third of all beef exports in 2014. According to local trade sources, the Russian Federation has approved more than 100 Brazilian establishments to export beef and beef products to Russia, including variety beef. Other important markets for Brazilian beef which will exhibit stronger demand are Hong Kong, Iran, Egypt, Venezuela, Saudi Arabia and China. Nearly all markets that suspended or restricted imports from Brazil because of the 2012 atypical BSE case, have reopened. 

A major concern of Brazilian beef exports continues to be residue violations for Ractopamine and Ivermectin. According to trade sources, despite the suspension of its use in November 2012, there have been cases of violations for Ractopamine found throughout the country, which jeopardize beef exports to markets such as the Russian Federation, China, Iran, Egypt and Chile. Trade sources also indicated that the use of Ivermectin is another concern that has the potential to affect exports to the United States, despite the recent prohibition of its use in Brazil since early 2014.

Animal Numbers, Swine

Production: 

Post forecasts hog production to increase by two percent in 2015 to support higher pork exports and to accommodate a small increase in domestic demand. Nearly 60 percent of hog production in Brazil is concentrated in the three southern states of Santa Catarina (which is the only state in Brazil free of FMD without vaccination), Parana and Rio Grande do Sul. Because production in these states is vertically integrated, good profitability is expected for hog producers in these areas due to the strong support from large pork packers. During 2014, hog producers, have so far experienced one of their best years in terms of profitability due to lower costs of inputs (corn and soybeans) combined with an adjustable supply and demand of hogs, keeping pork prices at high levels throughout the year. These factors are likely to continue in 2015 as international demand, mostly from the Russian Federation, will likely increase for Brazilian pork.

Meat, Swine

Production: 

Post forecasts an increase of nearly 5 percent in pork production in 2015. This forecast reflects the current optimism of the pork industry due to a rebound in the export markets, mostly from the Russian market and a small increase in domestic demand. Packers are confident that lower feed costs and strong sustained domestic and export prices next year will contribute to greater profitability. 

Consumption 

Post forecasts a small increase in domestic consumption of pork as Brazilian consumers will likely remain price conscious in 2015 due to high market prices for pork and there overall indebtedness. 

An intense marketing campaign in the past few years has increased fresh consumption of pork, but nevertheless, pork utilization in Brazil is estimated at 67 percent for industrial/processing and only 33 percent for fresh consumption. Promotional activities in Brazil are aimed to address two other constraints affecting fresh pork consumption: consumption during the winter months (June-August) and regional concentration of pork consumption in the southern region of the country. 

Trade: 

Brazilian pork exports are forecast to rebound significantly in 2015, mostly due to projected higher exports to the Russian Federation, due to its politically motivated one-year import ban on the U.S and other countries. 

In 2015, trade sources expect that Brazilian pork exports will occupy 35-40 percent of the Russian market. The Russian Federation recently re-established the eligibility of several Brazilian pork processing plants to export pork and pork products, although a number of plants are still delisted. The Brazilian government expects to address concerns of the Russian government regarding the use of Ractopamine before the end of the year, which should result in the relisting of additional Brazilian plants. 

Except for Ukraine, due to the political uncertainties in that country, pork exporters look forward to increases in pork shipments to markets such as Angola, Hong Kong, Chile and Japan. Other priorities for market access are South Korea and South Africa