Brazil. Beef Exports Will Continue To Increase In 2017 Feb. 24, 2017

Highlights

Post forecasts both beef and pork production to increase in 2017 to 9.6 million metric tons and 3.8 million metric tons, respectively. The increase in production is driven by higher exports, mostly to Asian markets, such as China and Hong Kong, and a small expansion in domestic demand for animal protein supported by the recovery of the Brazilian economy. Although producers and packers are benefiting from lower feed costs in 2017 due to record corn and soybean crops, some uncertainty remains regarding the current appreciation of the Brazilian currency which could affect their profit margins.

Executive Summary

There are no major changes for beef and pork outlook in 2017 , except for some update in trade data and domestic demand due to changes in the economy. Post forecasts both beef and pork production to increase by 3% in 2017 mostly driven by higher exports, and a small expansion in domestic demand. The outlook for the Brazilian economy in 2017 is for a cautious optimism with an improvement in the main macroeconomic figures, such as a forecast growth of nearly one percent in the Gross Domestic Product (GDP), a lower inflation rate, a small recover in the unemployment rate and lower consumer debt. In addition, lower feed costs because of a record corn and soybean crops are expected to improve returns to producers. Although large packers are benefiting this year from lower production costs, the current appreciation of the Brazilian currency (22 percent in the past 12 months) could affect their profit margins.

Commodities

Animal Numbers, Cattle

Production

Cattle supplies are expected to improve in 2017 after two years of high retention of cows and the drought in 2016 which affected the conditions of pastures in the center-west regions of Brazil. Cattle prices are also expected to be stable in 2017 which is likely to help both cattle and beef exports.

Trade

Post revised our estimates for cattle exports in 2017 to increase by over 40 percent mostly due to new markets, especially 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 in 2017). 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 Mauricio Islands. Exports of cattle to Venezuela, which was the largest Brazilian market until 2015, remain very weak due to payment defaults.

Commodities:

Meat, Beef and Veal

Production:

Post forecast beef production to rebound in 2017 and increase by around three percent to nearly 9.6 million metric tons (CWE), mostly driven by higher exports and to a lesser extent a small increase in domestic demand. Productivity is also expected to be trend upward in 2017 as a result of higher cattle weight.

Consumption:

Post estimates domestic beef consumption to recover in 2017 by 1.3% to 7.7 million metric tons (MT/CWE). The main factors for higher beef demand are more competitive beef prices compared to poultry and a small recovery of the purchasing power of Brazilian consumers. A recent consumer’s pool indicates consumer confidence is up in 2017 as the Brazilian economy returns its growth path.

Trade:

Beef exports are forecast to increase in 2017 at a rate close to 10 percent to 1.8 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.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 low oil prices. However, because of the estimated lower beef stocks in Russia, imports of Brazilian beef will remain high.

United States: Post forecasts an increase of 44 percent in beef exports (both fresh and processed) to the United States in 2017. Brazilian exporters are optimistic that they can fill out 80 percent of the U.S. beef quota for third countries (64,805 metric tons), because of the increase in the number of plants (currently 16) eligible to export fresh beef to the United States.

Other markets:South Africa, Iraq, Iran, Malaysia, Myanmar and Singapore not only resumed beef imports from Brazil, but Brazil is actively negotiating for eligibility of additional plants for export. Other negotiations to open market access for Brazilian beef are concentrated in Thailand, Taiwan and Indonesia.

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 a smaller expansion in domestic demand. Producer optimism is based on projected higher supplies of feed (corn and soybean meal) and lower costs of production. However, producers remain cautious about the impact on their profit margins from the volatility of the Brazilian currency (the Brazilian real appreciated against the U.S. dollar 22 percent in the past 12 months).

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 largely 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.

Commodities:

Meat, Swine

Production

Post projects an increase of three percent in pork production in 2017 to 3.8 million metric tons (MT/CWE). This forecast reflects the current optimism of the pork industry due to the strong demand for the Brazilian product in Asian markets and a small increase in domestic demand. In addition, record soybean and corn crops have reduced feed costs which account for 77 percent of the total production cost of swine in Brazil.

Consumption

Domestic consumption of pork is likely to increase in 2017 and reach nearly 3 million metric tons (MT/CWE) based largely on the assumption that the Brazilian economy will return to positive growth of about one percent in 2017. IN addition, producers hope to feed costs under control allowing the retail prices of pork be more competitive with beef and poultry.

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

Trade

Brazilian pork exports are forecast to increase by 10 percent in 2017 supported by firm exports of pork to Russia, Hong Kong and China. Higher exports to Russia are expected as Russia’s ongoing ban of pork imports from the European Union (EU) is expected to continue through 2018 as the WTO case brought by the EU continues. These three markets accounted for nearly 70 percent of all pork exported in 2016. In addition, exporters estimate exports are likely to increase to Argentina, 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.