Porto Alegre, February 9, 2022 – To understand the current crisis in Brazilian swine farming, it is necessary to go back in time. The first point is the relatively long cycle of pig farming. In this way, structural decisions taken today will only be seen in the medium and long term. When reports of African swine fever (ASF) and its major impacts on the Chinese swine chain began to appear at the end of 2018, major global pork players, including Brazil, boosted investments to meet the large deficit in Chinese supply. In fact, Brazil performed well in 2019 and 2020, with significant growth in exports and revenue, besides the good level of pig prices in the domestic market.
The big problem is that the maturation of the chain cycle, that is, the arrival of a large volume of production, has happened in the period of deceleration of purchases by China, resulting in excess availability of pork in the Brazilian market, which is difficult to absorb. It is also worth considering that excess supply occurs at a time when demand is historically weakened. In addition, the deterioration of the population’s income has affected the consumption profile, a factor that may continue to have an impact in 2022. Despite being an accessible protein, pork has lost competitiveness against chicken, which has lower relative prices. The environment of economic uncertainty leads households with lower income to migrate in greater proportion to chicken and eggs.
Oversupply of live hogs alone is a big problem, pushing down the farmers’ margins. However, there is the complicated scenario of the cost of animal nutrition, which is not expected to go down in the short term. The drought in the southern states of the country has been causing declines in both corn and soybeans. The logistics centered on the flow of soybeans, the high freight rates, and the short-term corn stocks are stress factors for prices in the first half of this year. A good second corn crop becomes essential for prices to slow down during the second half. On the other hand, the availability of soybeans and meal tends to be tight in the second half if expectations of a high flow of exports are confirmed. The outlook for costs remains pessimistic.
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