February 21, 2017

Brazil's cattle production costs see lesser increase than inflation in 2016

Production costs of cattle farming in Brazil saw an increase smaller than that of inflation in 2016, Center for Advanced Studies on Applied Economics (Cepea) says in a recent report.

Data from research conducted by Cepea along with the Confederation of Agriculture and Livestock of Brazil (CNA) indicate that the effective operating cost (EOC) - or grower's expenditure - increased 0.77% in the year. Analyzing the total operating costs (TOC), which considers depreciation of equipment, machinery, upgrading, pastures and the payment of workers' wages, the rise was overall calculated to be 1.58%. Estimates correspond to the weighted average of all productive systems (raising, fattening and complete cycle).

Cost rises were below inflation rates (6.29% (IPCA) in 2016) since calf quotes dropped 6.2% between December 2015 and December 2016. These price drops played an important role in cost control, since calf purchases account for 51% of production costs in the so-called "Brazil average", according to Cepea/CNA. By weighting costs, the share of animal purchases on raising/fattening farms accounts for 70% of EOC.

Quotes of other important inputs, however, increased more than inflation. Mineral supplementation prices rose 8.56%, and labor by 11.68% in 2016. In the medication segment, antibiotic prices increased 10%.

In the domestic market - although supply did not increase much in early February, prices dropped, due to pressure from purchasers. Stronger demand, expected with the payment of workers' wages, was not confirmed either, and beef sales did not increase in the wholesale market. In this scenario, slaughterhouses were trying to pay lower values for slaughtered animals, reducing purchases and pressing down arroba quotes. Some cattle farmers, however, left the market, in light of the lower bidding prices. Thus, slaughterhouses had to pay higher values, limiting price drops or even increasing the averages on some days.

On February 15, the ESALQ/BM&FBovespa fed cattle Index (Sao Paulo State) closed at BRL145.09 (US$47.32) per arroba (15kg), a drop of 0.48% in the month. In the wholesale market of the Greater São Paulo, between January 31 and February 15, prices remained stable. On February 15, quotes of beef carcass dropped 1.5%, at BRL9.94 (US$3.22) per kilo.

Swine and pork

Pork quotes reached a nominal record on February 15, with carcasses closing at BRL7.99 (US$2.59) per kilo in the wholesale market of the Greater São Paulo. Until then, the highest nominal price was BRL7.93 (US$2.57) per kilo observed in November 2014. Quotes of specific pork carcass increased 19.6% in the first fortnight of the month. With the low supply of live swine - which has underpinned the upward trend of quotes in many regions surveyed by Cepea, slaughterhouses increased pork prices. However, due to price rises, consumers' demand weakened and liquidity was reduced. In this scenario, some slaughterhouses decided to offer discounts in pork sales. Another alternative for processors was the reduction of slaughters. At some plants, activities were reduced to around 50% of total capacity.

In the live swine market, between January 31 and February 15, quotes increased 17.3% in the SP-5 region (Bragança Paulista, Campinas, Piracicaba, São Paulo and Sorocaba), to BRL5.27 BRL (US$1.69) per kilo on February 15.

In the international market, pork shipments reached a record in January when 63.4 thousand tonnes of pork were sold, an increase of 26% compared to the 50.3 thousand tonnes exported in December and 40.5% higher than the 45.1 thousand tonnes shipped in January 2016, according to Secex data. The boost came mainly from Russia, which purchased 22 thousand tonnes more than in January 2016 and 8.8 thousand tonnes more than in December 2016.

In the first fortnight of February, exportations continued at a fast pace. Until the second week of the month (eight workdays), the daily average volume of shipments was 2.8 thousand tonnes, 13% higher than in January 2017 and 21% above that in February 2016. This month, exportations have totaled 22.3 thousand tonnes, with revenue at US$51.2 million.

Poultry

In January, exportations of 'in natura' (natural) broilers reached a record for the month. According to Secex data, 325.41 thousand tonnes of in natura broilers were exported in January, 13.6% up compared to January 2016, but 0.4% down compared to the volume shipped in December last year.

Revenue in dollar totaled US$524.53 million, the highest for January (in dollar), Secex states. In Real, revenue totaled BRL1.676 billion (US$543 million), 6.9% up compared to January 2016 and 0.3% above that of December 2016.

According to the last Focus Report from the Brazil Central Bank (released on January 27), dollar quotes are expected to be around BRL3.40 (US$1.10) in 2017. This price level, above the current level, would also favor exportations of Brazilian broiler this year. Besides, occurrences of the avian influenza in several countries reinforce Brazil's role as an important broiler supplier.

In the domestic market, broiler prices dropped in most regions surveyed by Cepea in the first fortnight of February. Between January 31 and February 15, frozen chicken quotes dropped 1.1% in the Greater São Paulo, where the kilo closed at BRL3.88 (US$1.26) on February 15. Values of chilled chicken closed at BRL3.74 (US$1.21) per kilo in the Greater São Paulo on February 15, and stable in the fortnight.

Cepea collaborators reported a slight improvement in liquidity in early February, but broiler quotes continued at the lowest levels in the year, influenced by the weakened domestic market.

- Cepea-Brazil