Highlights

Post forecasts broiler production to increase by 3 percent in 2017 to 14 million metric tons as a result of higher world demand for the Brazilian product. A small increase in domestic demand is also projected for next year reflecting a new mood with the recovery of the Brazilian economy next year. However, higher feed costs, mostly because of the surge in the price of corn, remain as the most important constraint for 2016/2017, along with the volatility of the Brazilian currency.

Executive Summary

Domestic demand for boilers should improve in 2017 as the Brazilian economy is projected to grow and inflation is likely to be under control. Feed prices remain as the main constraint, although large packers benefit from lower-priced corn imports and subsidized government bids from public corn stocks.

Production

Broiler production is forecast to grow by 3 percent in 2017 with a production level of 14 million metric tons. Our forecast reflects the current expectations of producers to continue with a strategy to adjust supply and demand for boilers and to respond to higher world demand for the Brazilian product, especially from China, and a small improvement in domestic demand. However, some constraints remain, of which the most important are higher domestic feed costs due to lower corn crop and the volatility of the Brazilian currency. In addition, competition from beef prices is expected to be more intense, as the gap between beef and chicken prices narrow, although broilers remain as the most affordable animal protein in the country.

Production Costs

Feed costs, remain as the most important constraint for 2016/2017, along with the appreciation of the Brazilian currency. The second Brazilian corn crop suffered from a longer dry spell which caused a price surge in corn of more than 88 percent this year, and prompted the government to reduce the import tariff for corn from non-Mercosul suppliers, such as the United States. In addition, the federal government began sales of corn from public stocks. In the past 12 months, the average cost of broiler production increased by 34 percent, basically influenced by the prices of corn and soybean meal. On the other side, the appreciation of the Brazilian currency by 20 percent in the first semester helped producers to reduce other costs, such as day-old-chicks and vitamins. Independent producers are being more affected by the shortage of corn than those integrated producers. In general, broiler producers intensified the use of wheat as an alternative to reduce high-priced corn.

Consumption

Domestic consumption of broiler meat in 2017 is projected to increase by 2 percent to 9.7 million metric tons. Our forecast reflects the first signs of recovery of the Brazilian economy and the optimism with the economy in 2017 with lower inflation and small growth in the GDP. Although, chicken prices are expected to remain competitive with beef and pork prices, analysts expect more intense competition from beef, as the gap between beef and chicken prices narrow.

Trade

Post forecasts broiler exports in 2017 to expand by 5 percent to 4.4 million metric tons, over this year´s record. The growth in exports will likely be driven by higher world demand for the Brazilian products, mostly from China, the European Union and new markets recently opened. Brazil is now able to exports broilers to 158 countries, but 65 percent of all poultry exports are concentrated in seven countries (China, European Union, Hong Kong, Japan, Saudi Arabia, South Africa and United Arab Emirates).

Other market access work is being conducted in several countries, of which Indonesia is one of the most important, despite the WTO case by Brazil against that country. Brazilian broiler exporters remain optimistic about their traditional markets, such as Saudi Arabia, Japan and UAE in 2017, but look forward to increased exports to the following key countries to expand exports:

China: Brazilian broiler exports to China is increasing rapidly this year as a result of the Avian Influenza in the United States, but also because of the increasing number of plants approved to that market. Currently 29 plants are approved for China, but by the end of the year this number may increase to 40 plants in 2017. A Brazilian trade mission is expected to visit China in September with the purpose to negotiate new plants approvals to that market. Brazilian chicken feet are highly competitive in the Chinese market as the Brazilian currency devaluates further.

Mexico and Chile: Brazilian exporters are optimistic about these two markets, mostly Mexico which offers a potential over 200,000 metric tons in view of the Avian Influenza outbreak in the United States. The Brazilian government is negotiating the increase in the number of poultry plants to Mexico which is expected by the end of the year.

Pakistan, Malaysia and Myanmar:Three new markets for Brazilian broilers with a potential for more than 50,000 metric tons, according to Brazilian exporters.

Iraq, South Africa and South Korea:Brazilian exporters are optimistic about increasing exports to the two first markets, but less to South Korea in 2017. The Brazilian government is planning another trade mission to that country with the purpose of increasing exports of broilers and pork.

Russia: Although exports to Russia are up this year, Brazilian broiler exporters are not so optimistic about next year´s exports to Russia due to the lower oil prices and the economic situation in that country.

Venezuela: this market remains as the most negative factor for Brazilian chicken exports this year and likely will continue next year due to continued political and economic uncertainty. Lower oil prices combined with a political and economic crisis have affected the country ability to pay for their imports.

Post increased exports of broilers in 2016 by over 9 percent. Higher exports this year are mostly attributed to 4 factors: impact of the Avian Influenza, competitive prices of the Brazilian product during the first half of the year, and exemption of poultry packers for PIS/COFINS tax of 9.35% and a significant demand from China.

Production, Supply and Demand Data Statistics

Poultry, Meat, Broiler

2015

2016

2017

Market Begin Year

Jan 2015

Jan 2016

Jan 2017

Brazil

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Inventory (Reference)

55

55

55

56

0

57

Slaughter (Reference)

6295

6310

6370

6495

0

6690

Beginning Stocks

0

0

0

0

0

0

Production

13146

13146

13565

13670

0

14080

Total Imports

4

4

2

2

0

2

Total Supply

13150

13150

13567

13672

0

14082

Total Exports

3841

3841

4090

4210

0

4430

Human Consumption

9309

9309

9477

9462

0

9652

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

9309

9309

9477

9462

0

9652

Total Use

13150

13150

13567

13672

0

14082

Ending Stocks

0

0

0

0

0

0

Total Distribution

13150

13150

13567

13672

0

14082

(MIL HEAD) ,(1000 MT)