Brazil’s meat trade balance remains positive over the year

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Porto Alegre, October 23, 2020 – Brazilian exports of animal protein lost intensity in September, but the year’s cumulative balance remains very positive. As already discussed, the result is a consequence of the strong pace of purchases from China this year, seeking to fill the supply gap formed by African swine fever (ASF). The news of the replenishment of the pig herd in China is recurrent, but meat production will not increase suddenly, as pig farming has a cycle that needs to be respected. What is more likely is that production begins to show a gradual recovery from the last quarter of 2022. The intention of the Chinese government is the adoption of a more professional regime, with greater integration along the production chain.

For the last quarter, China is expected to absorb even more significant volumes of beef from Brazil, given the early planning of stocks to meet the demand during the country’s main holiday, the lunar new year. The preliminary figures for October already show a good increase in the pace of shipments, which tends to accelerate in the coming few weeks, emphasizing that the exchange rate parity keeps Brazilian animal protein highly competitive in the international market. By way of comparison, an arroba of fattened cattle costs around USD 70 in the United States, while in Brazil the arroba costs just over USD 45, which undoubtedly reflects the price of the traded meat.

Pork exports are still the main highlight of the meat industry’s trade balance in 2020, with an emblematic growth of 45% in relation to the same period last year. From January to September, Brazil shipped roughly 752 thousand tons of pork, against 519 thousand tons in the same period of 2019. In terms of revenue, the result is even more satisfactory, with approximately USD 1.66 billion, nearly 55% higher from the same period last year. China still accounts for approximately 50% of Brazilian pork exports. Logically, this dependence is the main justification for Brazilian shipments to have approached 100 thousand tons per month.

The result of monthly beef exports was below market expectations, but the result is still satisfactory, above 240 thousand tons in carcass equivalent, only 2% higher than in September 2019. The highlight remains on beef exports to the Chinese market, with more than 100 thousand tons shipped in carcass equivalent. Hong Kong is still the main destination, with shipments of roughly 33.6 thousand tons in carcass equivalent. Directly or indirectly, China accounts for approximately 55% of Brazilian exports.

In terms of revenue, much has been said about the decline in revenue during September. This movement concerns two factors, the first of which is the exchange rate variation, which produces this type of effect on the average price of Brazilian products in the international market. The second aspect that needs to be considered is the decline in the average price paid by China, which started to renegotiate its import contracts between the months of December and January, a period in which China paid more than USD 6 per kilogram of Brazilian beef. Since then there has been a gradual decline in prices, which in the last month of September reached an average of USD 4.20 per kilogram, down 5.7% from September 2019. This item will be better addressed in the following topic.

Considering the average revenue, Brazil collected around USD 660 million last September, down 1.62% from the same period last year. However, the overall balance remains very positive, with beef exports raising around USD 6 billion from January to September, up 23% from the same period last year. This revenue growth has to do with the increase in the volume of shipments, since the average price has decreased in 2020. In terms of volume, Brazil exported around 2.14 million tons of beef, in carcass equivalent, roughly 13.87% higher than in the same period last year.

For chicken, the overall performance is more discreet compared to the other two proteins. This movement is justified by a lower volume exported to traditional importers, such as the countries of the Middle East and Japan. With a possible recovery in these markets, the expectation is that the good pace of shipments will resume. From January to September, Brazil exported around 3.1 million tons, an increase of 2% in comparison with the same period last year. Revenue fell around 11% due to the exchange variation between one year and another, bringing down the average price of Brazilian chicken.

With the expectation of an excellent pace of shipments during the last quarter, there will be consequences in the domestic market, with room for even sharper upward movements in the entire meat sector. The point of limitation is the ability of the end consumer to absorb this type of movement. Even with this restriction, all indicators suggest that the last two months of the year will have record prices, contributing to the maintenance of the trend of inflation for basic consumer products.

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