Brazilian live pig prices cannot react due to surplus supply

645
Pig

Porto Alegre, April 7, 2022 – The crisis in Brazilian swine farming is gaining strength amid an excess of supply and high cost. The deterioration of the activity’s margins increased in the first quarter of the year, as well as the risk of production failure and abandonment, especially in the case of independent farmers who have a fragile capital structure.

Thank you for reading this post, don't forget to subscribe!

The sharp declines in corn in the Center-South of the country in the second half of March brought some encouragement to producers, however, the price of live pigs also lost strength and prevented the exchange ratio from improving. In São Paulo, at the end of March, an arroba of pork was able to buy 1.07 bags of corn, down from 1.19 bags registered at the end of February.

The corn situation tends to improve in the country in the second half of the year with the second crop. Of course, many factors can still affect the price of cereal in the second half of the year and deserve attention. The climate in Brazil is one of them and so far has evolved normally, which is favorable for crop development. The US crop, the climate in the northern hemisphere, the exchange rate, and the level of exports are also important variables that can change the market dynamics.

Pig farmers need to continue seeking to adjust production, through the reduction in births and control of average weight, so that the availability of pigs and the prices of the entire chain can find healthy levels in the medium and long term. The reduction in the housing of matrices is already rumored in the south of the country. Given the sharp losses, which range from BRL 300 to 330 per head in the interior of Santa Catarina, for example, tougher measures on the part of pig farmers are expected. The losses also lead farmers to accelerate the sale of animals, considering that the financial hole grows every day. However, this measure ends up keeping the market supplied and pressured.

The price of live pig is below that of chicken in some states, such as São Paulo and Minas Gerais, which draws attention. The exchange ratio between pork carcass and frozen chicken is at the lowest level in recent years, which makes it clear that there is a large surplus of pork in the domestic market. Beef remains at a restrictive level for a large portion of the Brazilian population in a difficult economic environment, with deteriorating family incomes. This scenario results in the migration to more affordable substitute products and, as a matter of preference, chicken is the most favored at this time, but the attractiveness of pork should help consumption over the year.

In the first two months of this year, Brazil slaughtered 7.503 million head, which represents an increase of 8% compared to the 6.947 million head registered in the same period of 2021. That is, there was a consistent increase in production in the period when seasonally demand is smaller. Another point that has been affecting domestic availability is the decline in exports due to the slowdown in Chinese purchases. Preliminary data on Brazilian exports for March must show better numbers for volumes shipped in comparison with January and February, but with a weak price per ton. It is worth noting that the strong appreciation of the real against the dollar weighs negatively. The margin of exporting industries is falling, which affects the dynamics of business involving live animals in the domestic market, with greater competition in terms of prices.

As for exports, Brazilian authorities have been working on several fronts, aiming to reduce the dependence on China, which is also suffering from a severe crisis. Faced with the crisis in its swine chain, China should continue to act with little force in imports in the coming few months. Recently the opening of Canada was announced, however, the potential volume to be exported is unknown, considering that Canadians are major exporters, that is, direct competitors of Brazil in the world market. Brazil is also advancing the conversations with other countries, such as Panama and the Dominican Republic.

Point of attention for the first half of April: on April 8, USDA will release a report updating the estimates for global meat. The expectation is around the Chinese data. Faced with the difficult scenario experienced by the Chinese, USDA may cut import numbers. In January, Chinese pork imports were estimated at 4.2 million tons.

SAFRAS Latam