November 9, 2020


BRF and JBS face higher livestock feed costs and lower export premiums for Q3


Major Brazil-based meatpackers BRF and JBS are set to report their Q3 results, affected by higher livestock feed costs even though exports remained high during the three-month period, Reuters reported.


According to a report from HSBC analyst Alessia Apostolatos on November 2, China is paying lower premiums now for imports of Brazilian meats. China remains a top destination for meat exports from Brazil.


Apostolatos said Brazil's weak currency has made its meat exports more globally competitive but has also increased input costs. This means China can negotiate reduced prices and absorb bigger quantities.


Soy futures on the Chicago Mercantile Exchanged reached its highest in four years after supply concerns were raised in Brazil following dry weather conditions. Another important livestock feed ingredient, corn, increased 46% in local currency over Q3.


However, Luciana Carvalho, Banco do Brasil analyst, said the impact of higher input costs is different for JBS and BRF because their product portfolios and production base is not the same.


Carvalho said the impact of third-quarter margins from higher grain costs is less significant in the United States as there is plenty of cattle stock there. The US accounts for 70% of JBS sales.


As for BRF, she said increased feed costs are a bigger issue as they are focused on swine and poultry. However, the company's corn inventories could provide a cushion as it lasts up to four months.


Meatpackers have shifted to higher-margin exports and processed foods that sell for more because of higher domestic costs. Because of this, JBS and BRF have benefitted from the cash aid programmed rolled out by the Brazilian government during the pandemic. The programme gave families extra money to spend on food.


Carvalho said on the negative end, BRF is still not allowed to export to Saudi Arabia, losing out on the halal meat market in the Middle East. As for JBS, tight cattle availability in Australia and export restrictions imposed by China are big problems.


Carvalho added increased domestic and international markets pork demand, especially from China, should offset the surging costs of livestock feed and safeguard margins in Brazil's swine processing industry.


All Brazilian meat companies underperformed in the Bovespa index in October as record cattle, corn and soy prices increase overhead.


-      Reuters