Porto Alegre, November 19, 2021 – The absence of China was deeply felt in the result of Brazilian beef exports. After two months of spectacular performance, there was an important setback. It is no secret that China is relevant for Brazilian beef exports by accounting for direct or indirect purchases that exceed 55%. Some aspects of this embargo need to be evaluated.
The Lunar New Year is the biggest consumption point in the Chinese market, it is the equivalent of year-end festivities in the West. China usually buys animal protein in good proportion in the three months before the celebration. In 2022, this holiday occurs on February 2. In general terms, China needs to take a stand on the resumption of purchases of Brazilian beef until mid-December. If there is no decision until then, it is more likely that it happens after the holiday.
As discussed in previous newsletters, Chinese pig farming is going through a serious crisis in 2021. Prices melted down amid advances in pork production, with an increase in average productivity. This situation is quite logical. China tried to professionalize its swine production, improving management techniques, animal nutrition, and investing in genetics. With production growth, prices plummeted.
In this environment, the Chinese government started to adopt strategies to stop losses, noting that production costs in China are quite high in 2021, that is, pig farming had a negative operating margin for most of the year. To control prices, the local government opted for classic strategies, starting with purchases of frozen pork to build public stocks. Another strategy adopted was to offer credit lines at differentiated interest rates to rescue pig farmers and keep them in business.
In order to maintain the strategy of downsizing the domestic market, there was also a strong retraction in the volume of imports. The retraction in purchases of Brazilian beef fits precisely in this aspect. Even though they are competing proteins, reducing the volume of beef offered in the Chinese market is interesting from the viewpoint of swine production, pushing demand towards the consumption of a protein that is currently much more competitive. Other countries also faced similar situations. Australian meat processors had exports suspended, with customs authorities in China alleging the presence of higher-than-normal chemical additives in some batches, besides labeling problems.
In October, China imported only 664,000 tons of animal protein, while traditionally purchases exceed 1 mln tons a month. All of these strategies seem to have an effect, considering that swine prices experienced a reaction during the first week of November. Perhaps China is trying to keep the supply picture lean until the Lunar New Year, aiming to address the distortions of its swine production.
Last October, Brazil exported around 153,000 tons of beef in carcass equivalent, a significant regression when compared to 2021 and the same period last year. The financial result also showed a significant decline, with the collection of just over 500 mln dollars. In other words, the absence of China impacted by almost 50% the volume and revenue of exports. From January to October, Brazil already exported around 2.3 mln tons of beef in carcass equivalent, a decrease of approximately 3% compared to the same period last year. Revenue shows excellent performance, having risen 15.45%.
For swine, the balance remains positive, however, you need to be alert to the reduction in the pace of purchases by China. The performance was only positive in October due to the good volume of purchases by Vietnam. From January to October, Brazil exported around 948 thousand tons of pork, an increase of approximately 13% compared to the same period in 2020. In terms of value, the collection grew around 21%.
One of the main highlights of 2021 in the international market is the performance of chicken exports, the overall result is very positive, Brazil tends to set a new historical record in terms of volume and revenue. From January to October, around 3.75 mln tons of chicken were exported, up 9.5% from the same period last year. In terms of revenue, the balance is also very positive, with a growth of approximately 24%.
The big advantage over other animal proteins is that it does not have such a high dependence on China. Halal shipments have been an important differential, with the United Arab Emirates and Saudi Arabia playing a prominent role in the imports of Brazilian chicken. South Africa is another country that deserves to be highlighted, with an excellent pace of purchases throughout the year.
Dependence on the Chinese market is a double-edged sword, it allowed consistent upward movements in the Brazilian meat industry. However, we have a glimpse of its absence with the situation triggered in the meat market, which is going through enormous turmoil. For Brazilian swine production, the slowdown in the pace of Chinese purchases tends to happen in a slow manner, unlike what was happened to beef.
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