Highlights

Post forecasts both beef and pork production to continue to increase in 2017 to 9.5 million metric tons and 3.8 million metric tons, respectively. The increase in production is driven by higher exports, mostly to Asian markets, and a small reaction in domestic demand for animal protein supported by the recovery of the Brazilian economy. However, producers and packers remain concerned with the price uncertainty of feed costs and the volatility of the exchange rate that could affect their profit margins.

The outlook for the Brazilian economy in 2017 calls for a moderate improvement in the main macroeconomic figures, such as a forecast growth of 1.16% in the Gross Domestic Product (GDP), a lower inflation rate, a small recovery in the unemployment rate, and the return of foreign investments. As a result, domestic demand for animal proteins in 2017 will likely grow at a slower rate, since the meat industry 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. Post also expects higher exports of beef and pork in 2017 after record exports of both proteins this year. However, the export outlook for 2017 is tempered by the uncertainty of the exchange rate that could affect further the competitivity of the Brazilian product, since the appreciation of the Brazilian currency in the past months have reduced profitability of exporters. In addition, higher feed costs, mostly high-priced corn could also impact on pork production and exports. Small revisions in the 2016 S&D for beef and pork were made to incorporate new expectations for production and trade.

Commodities

Animal Numbers, Cattle

Production

Post forecasts a continued outlook of limited cattle supplies for slaughter in 2017, although slaughter is expected to recover from this year. Limited cattle supplies are the result of two factors: high retention of cows in 2015-16 and insufficient volume of rains for nearly three years that is affecting the most important cattle producing areas in the center-west regions. Producer's prices are stable in 2016 due to retention of cattle by farmers and weak demand, but analysts expect prices to increase in 2017 as the economy improves

Trade

Post revised our estimates for cattle exports in 2017 to increase by 50 percent mostly due to exports to new markets, of which the most important promising markets are Turkey (with a potential of 100,000 heads per year and already the largest importer of Brazilian cattle in 2016) and Egypt (with a potential of 180,000 heads per year). Brazil also reached sanitary agreements for cattle exports with Jordan, Iraq and Bolivia and is close to reach other agreements with Vietnam, China, Malaysia and Mauritius Islands.

Exports of cattle to Venezuela, largest Brazilian market until 2015, remain very weak due to payment defaults. The total debt of Venezuela with Brazilian companies was estimated in June at over US$ 3 billion, of which US$ 220 million with Brazilian meat companies.

Production, Supply and Demand Data Statistics:

Animal Numbers,

Cattle

Market Begin

2015

2016

2017

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Total Cattle Beg.

213035

213035

219180

219180

0

226037

Dairy Cows Beg.

38980

38980

39290

39290

0

39685

Beef Cows Beg.

54210

54210

55025

55025

0

55850

Production (Calf Crop)

48220

48220

48250

48250

0

48350

Total Imports

2

2

3

2

0

3

Total Supply

261257

261257

267433

267432

0

274390

Total Exports

212

212

300

300

0

420

Cow Slaughter

10600

10600

10500

9375

0

9900

Calf Slaughter

300

300

300

300

0

300

Other Slaughter

27465

27465

27900

27920

0

27960

Total Slaughter

38365

38365

38700

37595

0

38160

Loss

3500

3500

3520

3500

0

3500

Ending Inventories

219180

219180

224913

226037

0

232310

Total Distribution

261257

261257

267433

267432

0

274390

Meat, Beef and VealCommodities:

Production:

Post forecasts beef production to rebound in 2017 and increase by around two percent to 9.5 million metric tons (MT/CWE), mostly driven by booming beef exports and to a lesser extent a small increase in domestic demand. However, the sector is still challenged by limited supplies of cattle for slaughter and volatility of the exchange rate which is expected to pressure packer's profit margins in 2017.

Consumption:

Post projects domestic beef consumption to recover in 2017 at nearly 7.6 million metric tons (MT/CWE). High retail prices of beef cuts combined with the drop in the purchasing power of Brazilian consumers have forced consumers to switch to other meats, such as chicken and to a lesser extent pork. However, in 2017, the difference between retail beef cuts and chicken is expected to drop due to the high costs of producing chicken and pork. Consumer's confidence is also expected to improve next year as the Brazilian economy returns its growth path.

Trade:

Beef exports are forecast to increase in 2017 at a rate of 6 percent to nearly 2 million metric tons (CWE), driven by higher demand from Asia, mostly China. The Brazilian government and packers are intensifying trade missions and export promotional activities for beef in Russia, Asia, and Middle-East.

The following is a brief summary of the main “drivers" that are helping beef exports in 2017:

China. Our trade contacts are optimistic that beef exports will continue to increase in 2017 after the significant increase in the number of beef plants authorized to export to China.

Hong Kong: Local traders expect Hong Kong to continue as a major importer of Brazilian beef, but at lower levels than in the past.

Russia: Local trade sources are more cautious about the Russian market in 2017 due the continued poor economic outlook, devaluation of the Ruble and lousy oil prices. However, because of the estimated lower beef stocks in Russia, imports of Brazilian beef will remain high.

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 expect to fill 80 percent of the U.S. beef quota (64,805 metric tons) for other countries in 2017 due to the competition with other suppliers and the limited number of beef plants (five) eligible to export fresh beef to the United States. Post forecast 95,000 metric tons of Brazilian beef exports to the United States in 2017, both fresh and processed.

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.

Production, Supply and Demand Data Statistics:

Meat, Beef and Veal201520162017
Market Begin YearJan 2015Jan 2016Jan 2017
BrazilUSDANewUSDANewUSDANew
OfficialPostOfficialPostOfficialPost
Slaughter38365383653870037595038350
Beginning Stocks000000
Production942594259620928409470
Total Imports61615050050
Total Supply948694869670933409520
Total Exports170517051850185001960
Human Dom.778177817820748407560
Other Use, Losses000000
Total Dom.778177817820748407560
Ending Stocks000000
Total Distribution948694869670933409520

Commodities:

Animal Numbers, Swine

Production:

Post forecasts hog production to increase by one and half percent in 2017 supported by increase in pork exports and higher domestic demand. Producer optimism is based on projected higher supplies of feed (corn and soybean meal), lower cost of production and stable exchange rate. However, producers remain cautious about the possible impact in their margins with the volatility of the Brazilian currency since the weakening of the Brazilian real against the U.S. dollar reached 18.34 percent during Jan-Aug 2016.

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 and those producers linked to large packers suffered less from this year's surge in feed prices, while independent hog producers were more affected.

Production, Supply and Demand Data Statistics:

Animal Numbers,

Swine

2015

2016

2017

Market Begin Year

Jan 2015

Jan 2016

Jan 2017

Brazil

USDA

New

USDA

New

USDA

New

Official

Post

Official

Post

Official

Post

Total Beginning

39395

39395

39422

39422

0

39223

Sow Beginning

2930

2930

2940

2940

0

2945

Production (Pig

39050

39050

39635

39635

0

40230

Total Imports

0

0

0

0

0

0

Total Supply

78445

78445

79057

79057

0

79453

Total Exports

3

3

2

2

0

2

Sow Slaughter

160

160

160

160

0

160

Other Slaughter

37768

37768

38522

38522

0

39292

Total Slaughter

37928

37928

38682

38682

0

39452

Loss

1092

1092

1150

1150

0

1160

Ending Inventories

39422

39422

39223

39223

0

38839

Total Distribution

78445

78445

79057

79057

0

79453

Production:

Post projects an increase of three percent in pork production in 2017, at 3.8 million metric tons (MT/CWE). This forecast reflects the current optimism of the pork industry with the strong demand for the Brazilian product in Asian markets and a small increase in domestic demand.

Consumption:

Domestic consumption of pork is likely to increase 2017 and reach nearly 3 million metric tons (MT/CWE) based on the assumption that the Brazilian economy is estimated to increase by over one percent and leave the current crisis behind and that producers will be able to maintain feed costs under control thus making retail prices of pork competitive with beef.

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 9 percent in 2017 supported by firm exports of pork to Russia and China. Higher exports to Russia are also based on the WTO case between the European Union and Russia extending through 2018. However, traders are also relieved with the fact that Brazil reduced the export dependency on the Russian market from an average 50 percent to 36 percent in 2016, while China and Hong Kong increased their market share to 34 percent.

In addition, exporters expect exports to increase to Angola, Japan, Mexico and Singapore next year as the Brazilian product is 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.

Production, Supply and Demand Data Statistics:

Meat, Swine201520162017
Market Begin YearJan 2015Jan 2016Jan 2017
BrazilUSDANewUSDANewUSDANew
OfficialPostOfficialPostOfficialPost
Slaughter37928379283868238682039452
Beginning Stocks000000
Production351935193609371003825
Total Imports111101
Total Supply352035203610371103826
Total Exports6276276707850855
Human Dom.289328932940292602971
Other Use, Losses000000
Total Dom.289328932940292602971
Ending Stocks000000
Total Distribution352035203610371103826