Porto Alegre, June 5, 2023 – Brazilian farmers of pigs remain concerned over the evolution of live pigs, which cannot find room for consistent highs. In some specific moments, as in the period that preceded Mother’s Day, prices even managed to gain momentum, with advances in replenishment, due to demand expectations, but after that prices did not sustain themselves. The Brazilian pork chain prices are very sensitive. The retraction of demand at the final end and the withdrawn posture of retailers quickly affect the market. The average price of a kilogram of live pig traded in the Center-South of the country closed at BRL 5.69 on May 25, down 7.9% from the average registered on the Friday that preceded Mother’s Day. In São Paulo, the average price dropped 9% in the period, with the arroba going from BRL 132 to BRL 120.
Slaughter and production in Brazil are growing in this first semester. According to data from SAFRAS & Mercado, slaughter in the first four months reached 16.004 mln head, 1.79% higher than the 15.722 mln head registered in the same period of 2022.
The positive point in this first half is the cost of animal nutrition, with lows in corn and soymeal, which favors the margins of the activity. The scenario could be better, with healthy profitability, if the national pork production were weaker. If, on the one hand, lower costs favor margins, on the other, they tend to loosen measures on production adjustment. The trend is already toward an increase in the average weight of pork, which will result in a greater pork supply in the medium and long term. Faced with the not very optimistic evolution of live prices, some farmers choose to keep pigs on the farms a little longer, now that the cost perspective is more favorable. Furthermore, the decline in the cost may result in the advance of housing as soon as margins reach healthy levels, which is bad for the future scenario. Pig farming needs to pay attention to the issue of production so that prices throughout the chain are balanced. Of course, the real effect of lower costs for many pig farmers and industries should happen within a few months, since many have expensive corn stored and purchased before the lows.
It is worth mentioning that Brazil has intensified investments in the pork chain since 2019, after the outbreak of African swine fever (ASF) in China, and some of these are maturing now. Chinese pig farming has already fully recovered from ASF, so much so that the current crisis in its market is due to oversupply. China is less active in imports, but Brazilian production was at a high level.
The issue is that Brazilian production is growing, and supply surpluses need to be absorbed, either by the foreign or domestic market. Brazilian exports are evolving well, with monthly results close to 100 thousand tons, with greater diversification of destinations, however, not enough to reduce domestic availability to levels that allow for a favorable environment for prices in Brazil. Local demand is a key factor, however, it has evolved timidly. One of the obstacles is that pork is ranked third in the choice of Brazilians, behind chicken and beef. The fattened cattle cycle is downward in Brazil. The increase in the beef supply should impact the choice of families at the final end. After a long period of restrictive prices, it is natural that a portion of consumers choose beef again now that it is more affordable. The lows in beef cuts should also impact chicken, which is also negative, as it should gain attractiveness compared to pork carcass. To close the picture, the Brazilian economy evolves with little strength and should close the year between 1.0 and 1.5%, which does not bring optimism for demand.
As previously described, the cost brings relief while the pork price concerns Brazilian pig farmers. The decline in corn has been more aggressive than the decline in live pigs, which is favoring the exchange ratio. In Campinas, a bag of corn was quoted at BRL 58.00 on May 25, down 36.26% from the BRL 91 registered in mid-March, when the lows started. In several places of the country, the decline in corn exceeds 30%, as in Santa Catarina, the largest Brazilian pork producer.
The pig x corn exchange ratio closed on May 25 at 2.07 in São Paulo, a little worse than at the end of the last fortnight. However, the attached graph shows that the ratio is at one of the highest levels in recent years. In Santa Catarina, the ratio was 1.78. It is worth noting that a good exchange ratio ranges from 2.0 to 2.5, according to the industry agents.
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