August 13, 2009

Brazil's beef sector still faces significant risks associated with liquidity and the current economic environment but the worst is over and recovery is in sight, according to Moody's Investors Service in a report Wednesday (Aug 12).

Analyst Soummo Mukherjee said that does not mean there will no further stress for beef processors, as there are potential consolidation opportunities in a sector with many financially weak companies today.

Brazil has some key advantages in the medium to long term that should allow the country to remain as the world's leading beef supplier, he said.

Despite the country's advantages such as abundant land and low production costs, seven beef processors had filed for bankruptcy in the past 12 months, Moody's said.

The global economic crisis has affected Brazilian beef exports and companies with significant foreign exchange exposure suffered when the real depreciated against the US dollar, Moody's said.

Mukherjee also said a strict management of working capital and capital expenditure is necessary to maintain sufficient capital structures to absorb the normal earnings volatility inherent in the sector.