November 25, 2020

Brazil beef prices soar on low supply

Brazil's beef prices have surged due to low supplies and strong demand from China, with meatpackers expected to pay 50% higher this year to record highs, Bloomberg reported.

Cesar de Castro Alves, an agribusiness consultant at Itau BBA, said cattle supply for slaughter is projected to remain low for 2021, maintaining the livestock's high prices.

Alves said strong export demand for Brazilian beef has boosted the earnings of major meatpackers JBS SA and Marfig Global Foods SA, but the record high cattle costs have resulted in narrower margins compared to last year.

He said margins for domestic beef sales are already negative.

Wagner Yanaguizawa, an analyst at Rabobank Brazil, said the record high cattle prices plus lower domestic meat consumption are affecting companies that sell locally, adding that the depreciating Brazilian Real and higher overseas sales volume and prices are only helping exporters.

But even major beef companies are feeling the pinch from high cattle costs. Wesley Batista Filho, head of JBS South America, said in early-November that Brazilian beef operations are challenging because of low cattle supplies.

Third quarter margins at JBS Brazil, which focuses on domestic operations, dropped to 7.5% from 13.8% in the previous quarter. It was 8.5% the year prior. The higher costs were offset partially by increased domestic prices and export markets.

However, beef companies may not be able to increase domestic prices further due to the poor local economic environment. The Brazilian government offered a cash stipend to the public to push food sales during the pandemic, but the aid could be lowered or stopped in 2021.

Yanaguizawa said cattle buyers are looking forward to seasonally weaker demand in Brazil and China in early 2021. But he said the concern remains about costs, as the shortage of cattle supplies will not change next year.

- Bloomberg