April 20, 2012

Pork Producers in Brazil Losing Money due to High Feed Costs

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Record high soybean prices as well as strong corn prices in Brazil are good for grain producers, but they have been a disaster for hog producers in the country. According to the Mato Grosso Association of Hog Producers (Acrismat), for a typical hog producer in Mato Grosso, feed rations make up 70% of the cost of producing a hog and 80% of the feed is composed of corn and soybean meal. Acrismat estimates that the total cost of producing hogs in Mato Grosso is approximately R$ 2.20 to R$ 2.30 per live kilogram. Unfortunately, the prices farmers are receiving for their live hogs is in the range of R$ 1.50 to R$ 1.65 per kilogram. At those prices, producers are losing approximately US$ 35 to US$ 38 per head.

Not too many years ago, pork producers in the state could purchase a sack of corn for R$ 6 or R$ 7, but today that same sack is selling for R$ 22 or R$ 23. A ton of soybean meal went from R$ 300 to R$ 700 during the same time.

Starting with the Russian embargo of Brazilian pork in June of 2011, Acrismat has been petitioning the state and the federal government to help the struggling industry. Russia had been the number one destination for port produced in Mato Grosso, but when that market was suddenly no longer available, hog prices fell at the same time that corn and soybean prices surged - a bad combination for pork producers.

At the same time producers lost a 50% rebate on the tax on electricity and they encountered an increase of 17% on the value added tax of corn purchased from Conab during one of their suctions. When producers purchased corn from Conab they thought they were going to pay R$ 18.44 per sack, but with taxes and fees, they ended up paying R$ 23 per sack.

Producers claim that if the government doesn't either subsidize the price of corn or raise the minimum price for pork, many of hog producers in the state will simply go out of business.