Porto Alegre, 14 July 2022, – The environment for the meat sector during the first semester was guided by the inflation of animal nutrition. The detachment in the price of agricultural commodities in the international market, together with crop failures in South America, made the supply scenario quite complex, both for soybeans and corn. The war between Ukraine and Russia was another element that accentuated this problem, increasing volatility in the international market.
The operating margin of swine and chicken farming was under pressure for most of the year. However, the chicken industry found the necessary conditions to improve its average profitability due to three basic factors:
– External demand. As discussed in the previous publication, chicken enjoys a privileged position in the international market. While the Northern Hemisphere is fighting a tough battle against Avian Influenza, Brazil remains unharmed by the disease. In addition, Brazil has been absorbing 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 revenues are also relevant;
– Internal demand. Owing to the increasing price of beef in retail, added to the slow growth of economic activity in the country (slow creation of jobs and limited increase in per capita income), the preference for other proteins that have less impact on the family budget becomes evident. In this sense, even with the rise in prices of chicken in recent weeks, this protein remains much more affordable compared to its competitors;
– Supply adjustment capability. When it comes to swine and especially cattle, 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, it has ample capacity to adjust the route in a shorter time, evaluating the shorter cycle of the activity. Basically, chicken farming has the unique ability to adjust to complex scenarios of demand fluctuations or even cost structure in a short space.
This basic scope increases the perspective of average profit growth from the second half of the year, a period in which the cost structure tends to be less onerous due to the arrival of the second corn crop in the market. Anyway, the overall picture still requires attention, and maintaining a coherent strategy toward supply remains a great need, since last year the scenario was promising with responsive demand and, even so, there was evidence of excess supply in the market.
Production adjustments have been carried out through cuts in housing. Basically, the numbers for 2022 are more timid compared to last year’s. According to APINCO data, Brazil housed around 2.75 billion breeder chicks in the first five months of the year, a decrease of approximately 3.4% compared to the same period in 2021. SAFRAS & Mercado’s projection for housing in 2022 indicates 6.82 billion breeder chicks, down 1.6% 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 14.38 million tons of chicken in 2022, with a domestic supply of 9.68 million tons.
Regarding demand, there will be few changes. Exports tend to remain robust, while the domestic market will continue to focus on chicken consumption due to economic limitations. In the proposed environment, it becomes credible that the chicken industry presents an operating margin growth, a different picture from what must be defined for the Brazilian swine industry, which continues in search of the recovery of operating margins and average profitability.
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