Porto Alegre, February 12, 2021 – The Brazilian domestic scenario has changed little. The local economy starts the year deeply weakened, with great uncertainties around employment and income. Furthermore, the month of January is characterized by some extra expenses that have a great weight on the household budget. The direct consequence is that an important part of the population lacks liquidity, and the increase in food prices has an enormous weight on family income.
In the meat industry, the biggest villain in relation to domestic prices is beef, which started the year maintaining record prices. Chicken and pork have become more affordable over the month. For beef, there were no consistent changes.
– Hindquarter set a new record in wholesale prices in São Paulo, beginning February with an average of BRL 20.80 per kilogram;
– Forequarter approaches its record price, beginning the month of February pegged at BRL 15.50 per kilogram in the São Paulo wholesale market;
– Frozen chicken starts the year showing declines, in an environment still ruled by supply surpluses, as a result of the increase in the housing of breeding chicks between the months of October and December. In February, frozen chicken has been quoted at BRL 5.50 on average;
– Pork carcass started the year showing an aggressive downward movement, an increase in supply in the southern region also happened, due to the slower pace of shipments in January. The main pork producers in the country transferred this production to other relevant consumption hubs, such as São Paulo, and Minas Gerais. Pork carcass started February at the level of BRL 9.00 per kilogram in the São Paulo wholesale market.
The upward movement in beef is a consequence of the latent supply restriction that currently dominates the livestock market. The prolonged drought in the second half of the year resulted in the delay in the development of grazing animals, which can only be slaughtered in mid-March. This supply restriction ensures that beef prices will not fall even in an environment in which average consumers are not in a position to maintain the demand for prohibitive products, thereby simply opting for more affordable products. In the case of the meat industry, the preferred protein is still chicken.
It is important to highlight that pork has gained competitiveness in relation to beef. This is an important element, assuming an intermediate protein role, as an additional alternative to chicken. The difference from chicken is still sharp, but there was a reduction in the spread. The exchange ratio graph clearly shows the importance of chicken for basic consumption in the country. With more affordable prices, there is an important guarantee of quality protein consumption for a relevant portion of the population.
A relevant aspect needs to be considered. With the victory of the government in the elections in the legislative houses, the emergency aid may be extended. This would encourage basic consumption, allowing even beef to have upward movements. While there is no confirmation of this scenario, beef is unable to rise more consistently, leading slaughterhouses to operate with a deteriorated margin this year thus far.
With such a troubled domestic environment, the trend is for the meat industry to continue focusing its efforts on exports. In this case, a single player has all the attention of the market: China. In the next topic, we will discuss a series of developments around a new strain of African swine fever (ASF) and its consequences for the process of recovery of the Chinese herd.
SAFRAS Latam