August 21, 2012

 

 

Grains futures prices are hovering near the record levels reached last month after drought slashed production in the US, the world's top producer of soy and corn, driving up the cost of these important sources of feed for poultry.

 

Francisco Turra, head of Ubabef, told Reuters that 20 of the association's 80 members, who range from small producers to large international exporters, were in financial difficulties because of the cost of feed.

 

"It's a crisis of the most serious kind in a sector that already works to very tight margins," he said.

 

Ubabef calculated that July's chicken meat production was 10% below the industry's average monthly output of 1.1 million tonnes due to the jump in the cost of grains, which account for about 60% of poultry producers' expenses.

 

Brazil alone accounts for 41% of the global trade in chicken meat, compared with 33% for the US. Brazil is also a major grains producer and suffered drought problems that slashed soy and corn output early in the year.

 

This week, Brazil's largest meat producers, Brasil Foods, JBS, and Marfrig, announced they would raise their prices due to the higher cost of inputs. Fitch Ratings downgraded its outlook on all three companies on Friday (Aug 17).

 

According to Ubabef, prices members are paying for soy have risen 80% in the last six months, and 40% for corn.

 

Turra said some producers were facing cash flow problems as grains traders demand immediate payment when it had been common practice to defer it. Banks were also tightening the supply of credit, he said, citing the case of one local producer, Diplomata, which has filed for bankruptcy protection.

 

Though drought in Brazil's soy belt left farmers vulnerable to a soy shortage this year, producers are expected to increase output for the 2012-13 crop by choosing to plant more soy instead of corn or cotton.