October 28, 2019


Brazil's poultry producers feel the pinch from tight corn market 



Brazil is shipping record volumes of corn this year amid bumper production and a weaker real. However, the increase in demand means it has become costly for local companies that use it as livestock feed. For poultry producers such as BRF SA and JBS SA's Seara unit, higher costs may mean a margin squeeze, Bloomberg reported last week.

The ratio of chicken to feed costs, a measure of industry profitability, has fallen to the lowest in eight months, according to data compiled by Bloomberg.

Brazilian corn prices have increased nearly 20% since the start of September to the highest since June 2018. However, chicken prices remained almost unchanged over the period amid weaker-than-expected export volume and rising domestic inventories, according to Cepea, the University of Sao Paulo research arm.

65% of the 2018-19 corn crop as of October 5 was sold by farmers, who have been stockpiling in anticipation of higher prices, according to Paulo Molinari, an analyst at consulting firm Safras & Mercado. That could keep costs elevated for chicken producers even amid comfortable inventory levels.

The margin squeeze is a bigger threat for poultry production than swine because the proteins face different demand conditions, said Juliana Ferraz, an analyst at Cepea. Chicken exports have fallen in the past three months, increasing inventories. In contrast, pork shipments and prices are strong in the wake of the spread of African swine fever in China.