Porto Alegre, January 26, 2022 – After the end of the embargo on Brazilian beef, meat prices found room for a strong reaction throughout the second half of December, even beef showed the necessary conditions to register price highs. In this period, the average price of hindquarter exceeded all expectations, reaching BRL 25.70 in São Paulo.
However, competing proteins faced a terrible last quarter and a very difficult early January. Both chicken and pig farming showed excess production. Even in the period marked by the peak of domestic consumption, there was no room for readjustments, on the contrary, prices dropped to their lowest in 2021.
The beginning of 2022 is especially difficult, with prices still falling in both segments, with the aggravating factor of the aggressive rise in corn prices in the domestic market. That is, the operating margin is again negative. The picture for pig farming becomes even more worrying as a result of the weaker performance of exports during the last few weeks. Chicken farming is still facing a spectacular result in its exports in terms of volume and revenue, still being a major highlight of the sector’s trade balance.
With inflated beef prices amid the fall of competing products, it seems quite logical that consumption in the domestic market will be driven to pork and especially chicken. This premise gains even more strength at a time of consumer decapitalization, dealing with traditional expenses for the period, such as the payment of IPTU, IPVA, and the purchase of school supplies.
The environment of high beef prices, added to the fragility of competing proteins, has significantly altered the exchange ratio between them. For example, in January 2022, hindquarter is four times more expensive than wholesale frozen chicken, while beef forequarter is approximately two and a half times more expensive than frozen chicken. In other words, at this moment the choice of chicken seems very logical from the point of view of the final consumer.
For the time being, there are no indications of a resumption of the upward movement between chicken cuts, in the same way that pork carcass prices do not have a great perspective of reaction in the short term. The logic also points to the weakening of wholesale and retail beef.
This environment tends to widen the revenue spread that has formed between exporting meat-packers and those that operate only in the domestic market. Basically, the domestic market cannot afford alone fattened cattle at the current levels. With the real still undervalued, exports will become the major focus of attention for Brazilian agribusiness in 2022. In the medium term, this dichotomy tends to make the market even more concentrated.
The dynamics for the rest of the year still indicate difficulties around domestic consumption. The macroeconomic situation in Brazil inspires care, with inflation still at alarming levels. Therefore, it is safe to believe that consumption will be directed towards more affordable products, so beef is likely to remain a distant option for the average consumer in the country, while chicken should maintain an important share of the market.