Animal nutrition costs pressure meat sector

Porto Alegre, March 25, 2021 – Last year’s outlook for the Brazilian corn market has been confirmed in all aspects. Supply difficulties are increasing, and prices set new records day by day. The scenario becomes extremely challenging for the pork and chicken industries, operating with very tight margins in this first quarter. Chicken prices have even found room for some highs in this period, but not to the point of changing this very delicate scenario. For pig farming, volatility has been strong in the first quarter, alternating moments of sharp lows with aggressive surges. In March, prices have been in a bearish curve.

The prices of products used as source of protein, such as soymeal and animal origin flour, showed some retraction in February and March. However, prices continue high after the consistent upward movement observed in the second half of 2020. There is an important support for meat and bone meal. Basically, the scarcity of supply of fattened cattle at the beginning of the year leads to a very lean supply of their derivatives. As a comparison, the prices of green leather and bovine tallow are very close to their historic top this March.

The current structure of animal nutrition costs will not be solved immediately, only the arrival of the corn’s second crop to the market will change this complicated scenario, all the delay in the 2021 planting needs to be mentioned, that is, there will only be the availability of corn at the end of July and early August. Imports would be an alternative, however, the exchange rate movement still makes the operation unfeasible, keeping imported corn above BRL 100 a bag. The market lacks alternatives, and the months ahead will be even more complicated.

There remains only one alternative to mitigate the effect of animal nutrition costs. For pig farming, the slaughter of light animals would keep pigs for less time on the farms, that is, thereby reducing consumption. Chicken production has a great alternative because of its short cycle. There is the possibility of reducing the housing of breeding chicks in the coming few months, which in itself reduces the demand for corn. Despite a series of reports from large cooperatives and other companies studying a reduction in housing, prices of breeding chicks and fertile eggs remain at their historic peak, a symptom that demand is still quite positive.

In the case of the beef industry, the high cost of animal nutrition and the replacement market prices at their historic highs can affect the winter confinement in its first round. Basically, last year’s movement can be repeated, with confinement declining in its first round but increasing in the second round.

In general terms, the difficult corn supply in the first half of the year will bring consequences of a smaller or larger proportion in all activities that make up the meat sector. Operational difficulties tend to produce changes in the structure of companies. It is important to highlight that the transfer of additional costs to consumers has not kept up with the price increase in raw material.

Safras & Mercado

Tags: Brazil, Meat, Animal