Pig Woes and Cheap Feed Create Sweet Spot for Brazilian Chicken Giant
††† Investors may forgive weak earnings as outlook brightens
††† Swine fever in China boosting prospects for meat export demand
By Gerson Freitas Jr, Bloomberg
May 9, 2019
The stars seem to be aligning again for troubled BRF SA.
A deadly pig disease sweeping across China has boosted prospects for meat exports, leading to a surge in protein producer shares. At the same time, ample grain supplies in Brazil are lowering the cost for the Sao Paulo-based company to feed its chickens and hogs.
The price for corn used as livestock feed in the South American nation is down 21% in the past year with farmers set to harvest a record crop in 2019. In contrast, domestic chicken prices have jumped about 60% amid rising export volume and tighter domestic supplies.
With most of the cost of producing chicken coming from feed, the ratio of chicken prices to feed costs -- a measure of industry profitability -- climbed to the highest since at least since 2015 for this time of the year, according to data compiled by Bloomberg.
Domestic corn prices should remain under pressure over the next few months as Brazilís total output of the grain is seen reaching a record 96.8 million metric tons this year, with fiercer competition in the export market from the U.S., Argentina and Ukraine adding to the bearish outlook, Ana Luiza Lodi, an analyst at INTL FCStone, said in an interview.
Soybean prices have also weakened globally as African swine fever is eroding demand for the oilseed used to make feed in China.
The Asian nation has been forced to cull hog herds as the diseases spreads. Pork production in China, the top consumer, probably will decline about 30% this year, a drop roughly the size of Europeís entire annual supply, according to Rabobank International.
Meat prices and trade volumes -- whether itís chicken, beef, seafood or even plant-based alternatives -- are likely to rise as a result, boosting revenues of major suppliers.
Improved market conditions have raised expectations for a turnaround at BRF...
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