September 29, 2016

Increased Pork Exports helps Brazilian Hog Producers

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

Brazilian hog producers have had a challenging year thus far. The domestic pork market has struggled due to the weak Brazilian economy which reduced demand and made it difficult to increase prices. The Brazilian GDP is forecasted to contract 3.3% in 2016 after contracting 3.8% in 2015. Additionally, producer's costs have increased due to very high domestic corn prices. The one saving grace for Brazilian pork producers has been the expanding pork exports.

According to a report in Gazeta do Povo, the Brazilian Animal Protein Association (ABPA), is reporting that from January through August of this year, Brazil exported 478,900 tons of pork representing an increase of 40% compared to the same period in 2015. During the month of August, exports increased 30% compared to August of 2015.

For the first eight months of 2016, Russia was the number one destination for Brazilian pork accounting for 159,300 tons or 4% more than the previous year. In second place was Hong Kong at 111,100 tons or 54% more than last year. China came in third at 63,400 tons. Chile registered the greatest increase year-on-year at 200% more in 2016. Other destinations such as Uruguay, Argentina, and Singapore also registered increases.

Brazil is the fourth largest pork exporter after the European Union, the United States, and Canada.

A major challenge for Brazilian pork producers in 2016 has been the skyrocketing price of corn. Corn prices in southern Brazil started the year at approximately R$ 27 per sack or $3.80 per bushel. By June, the corn prices in some locations in Brazil had peaked at R$ 60 per sack or approximately $8.50 per bushel, which is a record high domestic corn price. The high prices were due to the fact that Brazil ran out of corn in early 2016 because of overly aggressive corn exports in late 2015 and early 2016. Livestock producers in southern Brazil were forced to import corn in early 2016 to keep their operations functioning.

The Center for Advanced Studies in Applied Economics (CEPEA) reported that the price of corn in Campinas, Sao Paulo last Friday was R$ 40.96 per sack or approximately $ 5.60 per bushel. This is the lowest corn price in the city since last January 11th. Brazil is once again importing corn and the domestic corn prices in Brazil are expected to continue declining as more corn is imported.

Independent hog producers were hit hardest by the rising corn prices due to their limited buying power. Many independent producers temporarily suspended production waiting for lower corn prices. Even large producers/processors cut back on production and processing schedules in an effort to trim costs.