Pig farming: Rising costs and moderate demand worry in short and medium term

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Prices of live pigs and the main wholesale cuts have been steady in the Brazilian market, but the apprehension tone is growing due to internal and external factors that can generate turbulence in the coming few months, which would result in a bearish movement  for live pig amid rising production costs.

The first issue is coronavirus and its impacts on China (the largest importer of Brazilian pork). The Chinese economy has been paralyzed by the spread of the disease, blocking the logistics of products between provinces, besides causing congestion of containers in the country’s ports and reducing the impetus for imports. In view of a hard flow and reduction in regional stocks, pork prices increased sharply in the Asian country, as previously discussed. So far, data on Brazilian exports have not dropped, but it is worth noting that most shipments involve business closed prior to the Lunar New Year and to the deepening of the coronavirus crisis. In January Brazil exported 67,400 tons of pork, out of which 30,600 tons went to China, according to data from the Brazilian foreign trade statistics portal (COMEX). In February around 30,000 tons were sent to the Chinese (still preliminary data), in line with those registered over the past few months. With China less active in negotiations, Brazil’s numbers tend to be impacted from March, which may end up resulting in greater domestic availability and pressure on prices. It is worth noting that the balance of the Brazilian market remains dependent on a high flow of exports, considering that domestic demand is not capable of absorbing large production surpluses.

The outlook for the growth of the Brazilian economy has been deteriorating, and now only a modest advance is expected for 2020. Jobs are being created in the country, but not at a speed that quickly boosts consumption. A drop in global activity will certainly affect Brazil. So far, it has been difficult to measure how far the Chinese and global economy will go, so the monitoring of news related to coronavirus and economic activity indicators must be carefully maintained over the next few months.