Brazil’s housing of breeding chicks fall in first four months of 2022

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Porto Alegre, June 2, 2022 – The environment of the meat industry has been guided this first half of 2022 by the inflation of animal nutrition. The detachment of prices of agricultural commodities in the international market, besides crop failures in South America, made the supply scenario quite complex, both for soybeans and especially corn. The war between Ukraine and Russia was another element that accentuated this problem, increasing volatility in the international market.

The operating margin of pig and chicken farming has been under pressure for most of the year. However, the chicken industry has found the necessary conditions to improve its average profitability due to three key factors:

– External demand. As discussed in the previous newsletter, chicken enjoys a privileged position in the international market. While the northern hemisphere is fighting a tough battle against Avian Influenza, Brazil remains free from the disease. Besides, Brazil has absorbed part of the market that until then belonged to Ukraine. In this context, the country is expected to maintain its position as the global leader in chicken exports. Besides the large volume, the revenue is also relevant;

– Internal demand. Owing to the increasing price of beef in retail, coupled with the slow growth of economic activity in the country (slow creation of jobs and limited growth in per capita income), the preference for other proteins that have less impact on household budget becomes evident. In this sense, even with the rise in chicken prices in recent weeks, this protein remains much more affordable compared to competitors;

– Supply adjustment capability. When it comes to swine and especially cattle farming, the decisions taken about production adjustments have an effect in the medium or even long term, as a consequence of the long cycle of these activities. For the chicken industry, the picture is different, the chicken industry has ample capacity to adjust the route in a shorter time because of the shorter cycle of the activity. Basically, chicken farming has the unique ability to adjust to complex scenarios of demand fluctuations or even to the cost structure in a short period.

This basic scope increases the perspective of average profit growth from the second half of the year, when the cost structure tends to be less onerous due to the entry of the second corn crop in the market. Anyway, the general picture still requires attention, and maintaining a coherent supply strategy remains a great need, since last year the scenario was promising with responsive demand, and even so there was excess supply in the market.

The production adjustment has been carried out through cuts in housing. Basically, the numbers related to 2022 are more timid compared to last year. According to APINCO’s data, Brazil housed around 2.2 billion breeding chicks in the first four months, a decrease of approximately 4% compared to the same period in 2021. The projection for the housing of breeding chicks by SAFRAS & Mercado for 2022 indicates 6.79 billion head, down 2% from 2021.

The supply trajectory indicates an interesting production of chicken, capable of maintaining the consumption pattern of the Brazilian population. This is undoubtedly an important guideline from the point of view of food security. Brazil is expected to produce 14.4 million tons of chicken in 2022, with a domestic supply of 9.73 million tons.

There will be few changes in terms of demand, and exports tend to remain very robust, while the domestic market will continue to focus on chicken consumption due to economic limitations. In the proposed environment, the chicken industry must present an increase in its operating margin, a situation different from that of the Brazilian swine industry, which tends to continue coping with difficulties over the year.

SAFRAS Latam