Brazil: Livestock production, export demand continues despite feed costs, coronavirus

25-Feb-2020 - Last updated on 25-Feb-2020 at 08:48 GMT

Higher, if stable, feed prices and uncertainty tied to a global disease outbreak are not expected to reduce Brazil’s beef and pork production or export demand in 2020, says analyst.

The US Department of Agriculture (USDA) released expectations for feed use and livestock production in Brazil in an agricultural specialist’s report on Friday.

Overall, higher feed prices and export market uncertainty connected to the ongoing coronavirus – or COVID-19 – outbreak in China have not dampened export market expectations for beef and pork producers, the specialist said.

“The uncertainties facing the sector are fluctuations in the exchange rate, the trade agreement between the United States and China, and the impact of the ‘coronavirus,’” he said. The disease outbreak has raised questions about the export of beef to China and how long the problem will last.

“However, despite the current logistical problems with the ports and the internal transportation system in China, Brazil’s beef exports soared to China during Jan-Feb 2020,” he said. “Brazilian packers also expect higher beef exports to China throughout the year due to the continued problems derived from the outbreak of African Swine Fever [ASF] and higher demand for beef.”

Beef production is anticipated to increase by 3.4% while pork production is predicted to expand by 4.5%, he said. The growth in production is supported by export and domestic demand.

Cattle, hog production

Precipitation is supporting strong pasture conditions for Brazil’s grass-fed cattle industry and the 2020 calf crop is forecast to grow by 2%, the specialist said. However, producer retention is limiting cattle supplies temporarily – a condition expected to continue through the first quarter.

“During the upcoming dry season, feedlot operators are projecting an increase of over 10% in their operations in 2020 to a record of over 6m head of cattle under some type of confinement,” he said.

Beef production in 2020 is anticipated to set a new record reaching production of 10.5m metric tons of carcass weight equivalent (MT/CWE), he said.

“The increase in production will mostly come from expected gains in average carcass weights, projected record exports, mostly to China and Hong Kong, and higher domestic demand, as the Brazilian economy is forecast to grow by over two percent,” he added.

Domestic consumption is expected to increase by 1.5% in 2020 following improved economic activity, the specialist said. Inflation and unemployment rates are both expected to decline, which would improve consumer purchasing ability.

In 2019, retail beef prices increased about 30% following an uptick in exports at the end of the year, he said. Thus far into 2020, domestic prices have fallen about 15%.

The 2020 swine herd is anticipated to expand by about 4% reaching a record 44m pigs, he said. Bumper crops of feed ingredients like corn and soy are expected to provide stable feed costs – if at a higher level than previous years.

Producers are expecting better returns based on the continuing outbreak ASF and spread of the disease to Europe, he said. Sector investments are predicted to improve productivity by about 3%.

“The cost of hog production (by kilogram, live weight) increased in 2019 over 8%, mostly due to an increase in feed costs,” the specialist said. There is skepticism about the possibility of lower corn prices in Brazil in the future based on expected record exports in 2020.

Pork production in 2020 is forecast to reach 4.2m metric tons – an increase of 4.5% from the previous year, he said. Factors supporting the increased production include the international demand for pork following the ASF outbreak coupled with higher domestic demand, anticipated increases in productivity and carcass weights, and a currency devaluation that makes Brazilian products more competitive.

“Feed costs are expected to remain stable, although at somewhat higher levels in 2020 than in 2019,” he said. “Stronger margins along the production chain are forecast to lead to healthier profits for the second year in a row.”

Trade and exports

Live cattle exports were lowered during 2019 and were anticipated to decline in 2020 following a reduction in exports to Turkey, the specialist said. However, Iraq has increased its imports and trades see export opportunity following a decline in production from Australia.

“The legal problem that caused the Port of Santos in São Paulo to remain closed through most of 2019 has been resolved and exporters are optimistic about resuming exports through that major port,” he added.

Beef exports are expected to continue to grow in 2020, though at a slower pace than was witnessed in 2019, the specialist said. Trade is anticipated to increase by 10% reaching a record 2.5m metric tons (CWE) based on demand from China and Hong Kong.

“In 2020, a combination of a devalued Brazilian currency and expected stable domestic prices will likely keep Brazilian beef export prices competitive in the world market,” he said. There is also interest in supplying Muslim countries as Brazil exports halal beef.

Pork exports are anticipated to see 15% growth in 2020 based on demand, he said. “Brazil is currently facing a unique situation of supplying pork to the world without any major sanitary issues and it has taken significant steps forward in the sanitary status of the swine industry,” he added.

During January and February 2020 exports have grown by 41% compared to the same time last year, he said.