June 18, 2012

The sharp decline of the Brazilian currency, along with rising cattle throughput, has led to the price competitiveness of the country's beef exports.

Brazilian beef exports increased 30% on-year in May, to 83,000 tonnes. After a sluggish start to the year, beef exports for the first five months of 2012 are now 3.1% above year ago levels, at 339,000 tonnes.

The Brazilian Real decreased 18.4% on-year to the end of May, falling from a high of US$0.62 in May 2011, to average US$0.49 in recent weeks. The depreciation has been influenced by a significant tightening of monetary policy within Brazil, with the Brazilian Central Bank, cutting interest rates by 400 basis points since August 2011. The latest interest rate cut (May 30) of 50 basis points took the official cash rate to 8.5%. These interest rate cuts come as Brazilian policy makers look to shore up an increasingly sluggish economy. The World Bank revised down its 2012 growth forecast for Brazil from 3.4% to 2.9% in its latest global outlook released in June.

The decrease in the real has come at an opportune time for Brazilian beef exporters, as supplies have increased with the onset of the dry season. The increased supplies have also been reflected in the physical market, with the Sao Paulo cattle market index decreasing from US$3.25 per kilogrammes in January, to US$3.04 per kilogrammes as of June 13 (FNP).

Although Brazilian beef exports have increased in the five months to the end of May, exports to Russia, historically Brazil's largest beef export market, have started 2012 slowly. The ban put in place by Russia on a number of Brazilian beef processing plants in June 2011 has limited the amount of Brazilian beef able to access the Russian market, constraining export growth.

An increase in exports to other market has helped to compensate for the reduced market access into Russia, including to Chile, Hong Kong and Egypt.