June 24, 2011

Suspension of Imports by Russia Panic Brazilian Pork Producers

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

Pork producers in Brazil are requesting assistance from the state and federal governments in adverting a financial disaster for the industry. The Federation of Agriculture and Livestock of Mato Grosso (Famato) made the request on behalf of its 350 registered pork producers. Mato Grosso is a minor pork producing state compared to the much larger producing states in southern Brazil (Parana, Santa Catarina, and Rio Grande do Sul), but it is reflection of what is happening to the pork industry throughout Brazil.

The source of their concern is two-fold. The first concern is the increased cost of feed due to strengthening corn prices. This is a particular concern in southern Brazil which is a corn deficit region. Needed corn supplies must be trucked in from central Brazil at extremely high transportation costs. The federal government has picked up much of those transportation costs over the last two years and pork producers are asking the government to accelerate the start up of that program once again this year.

The second and potentially more serious concern is Russia's recent prohibition of importing Brazilian beef, pork and poultry. Russia is the largest importer of Brazilian meats and the reason for their suspension of importing Brazilian meat is unclear. Adding to the panic of the pork producers in Brazil is Ukraine's recent decision to also suspend the purchases of Brazilian meat. Ukraine is also an important importer of Brazilian meat products. With these two large markets blocked, there has been an immediate surplus of meat products for the domestic market.

The result has been lower prices for pork producers. Famato estimates that the cost of producing a kilogram of pork in Mato Grosso is R$ 2.15, but the current market price is just R$ 1.40 per kilogram. The producers want the federal government to quickly resolve the issues that led to Russia's suspension of Brazilian meat imports. They also want the state government to lower taxes on pork products as a way help stem some of their losses.