Porto Alegre, May 4, 2023 – In April, the price of live pigs dropped in the Center-South of the country, to a lesser extent compared to March, but the warning signal remains lit, keeping pig farmers apprehensive. On the 27th, the average live price in the region was BRL 5.92, down 3.27% compared to the BRL 6.12 registered at the end of March. The big point is that pig carcass does not evolve satisfactorily at wholesale, signaling that retail has been showing comfortable positions and meat-packers hold a high volume of stored meat. Thus, it is natural that the industry slows down pork purchases. It is also worth mentioning that the prices of chicken and beef cuts have been unstable, a factor that weighs on household choices at the final tip. Pork ranks third in the Brazilian preference.
Pig farmers are still concerned about the evolution of live cattle prices, however, production and high supply weigh. Some factors need to be carefully monitored throughout the year, such as the pace of exports, the exchange rate, Brazilian economic activity, and the price of competing proteins. The positive point this year is the decline in the cost of animal nutrition, following the recent movements in soymeal and corn, which brings some relief. The sector’s crisis, deepened in 2021, was due to the weak pork price and high costs. The cost of nutrition is on a downward trend, with a record soybean crop and the prospect of a great second crop in the second half, on the other hand, pork production continues to grow in Brazil and with this, there is a need to expand volumes exported or strong growth in domestic demand, which seems difficult for 2023. Thus, the return to profitability for pig farmers depends on the maintenance of falling costs.
Corn has been presenting a consistent decline in prices, which draws attention even among consumers. In Campinas, a bag of corn was priced at BRL 68 on April 27, a decline of 20.5% compared to the closing of March, when it was quoted at BRL 85.50. In Santa Catarina, the average price per bag fell 18.51% in the same period, from BRL 84.14 to 68.57. The decline in corn in the Center-South of the country is widespread, with a symptom of a “panic” market. With the record soybean crop, warehouses were full and producers do not have much corn retention capacity. Soybean outflow logistics this year are difficult due to the huge production, which must continue impact the market throughout the year. In addition, there are producers opting to retain soybeans in the hope of a return in prices after the intense lows registered over the last few weeks. Another point to be considered in relation to corn is the second crop, which must be large if there are no climatic problems in the country. The US corn and soybean crops also deserve attention, and so far the climate models show no problems. Corn planting began at an accelerated pace in the United States.
The price lows in corn were more intense than the decline in pork over the last few weeks. The pig x corn exchange ratio reached the best level since January 2021 in several states. The attached graph shows that the ratio reached 1.65 on the 27th in Santa Catarina. That is, with one arroba of pig it is possible to buy 1.65 bags of corn in the state. In the state of São Paulo, the ratio reached 1.84. The industry agents point out that a good exchange ratio is in the range of 2-2.5.
The lower cost of nutrition is certainly positive for pig farmers, who have coped with a difficult situation regarding margins over the last few years, but it could lead to a loosening in the issue related to productive adjustment. It is worth pointing out that the main measure adopted until then was the reduction of the pig’s average weight. The weight must increase over the next few weeks, with pig farmers being able to opt for keeping the animals on farms for a longer time due to the fragility of live cattle prices and lower costs, but such a measure must lead to greater availability of beef in the domestic market, which is bad for price formation along the chain. The decline in housing and births also becomes more difficult with declining costs. Pig farmers need to pay attention to the production level, otherwise margins will not improve satisfactorily even with the lower cost.
As previously mentioned, the domestic demand for pork is not expected to increase sharply in 2023, considering that the Brazilian economy is expected to grow discreetly, and possibly inflation must grow again in the coming few months. According to the Focus report, the market expects inflation to close above 6% this year, above the target of 3.25%, with a tolerance of 1.5% up or down. Chicken and beef are also on a downward trend, a negative factor for pork. The cost can also weigh on the decision about chicken housing, which deserves attention.
If the domestic demand is not promising, the reduction in domestic supply needs to occur through exports. Brazilian pork exports must perform well this year, but without major growth, considering that our biggest importer, China, is facing a crisis in pork production due to oversupply. Prices in China continue on a downward trend, with no signs of stabilization so far, with less efficient producers quitting the market and putting pressure on prices. This scenario leads to a measured action by the Chinese in imports over the next few months and possibly with tougher negotiations in relation to prices.
The exchange rate factor is important, as the strengthening of the real against the dollar reduces the attractiveness of Brazilian products on the world stage. The margin of the exporting industry may deteriorate if the ton price retreats along with a weak dollar. In any case, great volatility against the dollar is expected until the end of the year due to the Brazilian political and economic news, besides an adverse scenario in the world financial market, with a slowdown in several economies, either mature or emerging.
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