September 5, 2016
Brazilian Poultry and Hog Producers React to Higher Corn Prices
According to the National Association of Animal Nutrition (Sindiracoes), livestock producers in Brazil increased their feed consumption during the first half of 2016, but feed consumption is expected to decline during the second half of the year.
Sindiracoes estimates that the consumption of corn and soybean meal, which are the two principal components of animal rations, increased 3.2 % during the first half of 2016 to 33.3 million tons. During the second half of 2016, when consumption usually increases, they feel the consumption will remain unchanged compared to the first half of the year and be down compared to the second semester of 2015.
According to a report in So Noticias, feed consumption was up during the first half of the year due to an adequate supply of corn at the time and the hope that the Brazilian economy would improve. Those hopes were dashed when hot and dry weather in central Brazil devastated the safrinha corn crop and the Brazilian economy remained mired in the worst recession in decades.
By May and June of this year, livestock producers in Brazil realized that the tight corn situation was going to get even worse due to robust corn exports and declining corn production, so they decided to start trimming their operations. The domestic price of corn in Brazil peaked in May and June at 81% higher than during the previous year. Soybean meal prices were also up 53% over the past 18 months. Poultry and hog producers are responsible for 80% of the feed demand in Brazil with the remaining demand coming from cattle and pet food.
Poultry production in Brazil is 90% vertically integrated while hog production is 70% vertically integrated. Under these production systems, feed production is just one step in the overall production chain and larger companies are much better suited to withstand higher feed costs compared to independent producers. Therefore, most of reductions in animal numbers is coming from independent producers. Many independent producers have indicated that they will keep their operations closed until the price of corn and soybean meal returns to more reasonable levels.
The company BRF, which is the largest poultry exporter in the world, announced at the end of July another round of possible price increases after already increasing prices for their products at the end of May. The company stated that the higher prices were needed in order to regain profitability in Brazil after higher corn prices and a drop in poultry prices in dollar terms during the first half of 2016 reduced their margins.
Another big poultry and hog producer in Brazil is JBS which indicated in recent reports that price increases instituted earlier this year were not enough to offset the 100% increase in corn prices compared to a year earlier. The company indicated that further price increases were possible.