Brazilian Beef Exports Gain Competitiveness In Asia

BMI View: We maintain our forecast for Brazil's beef production to increase by 3.0% year-on-year (y-o-y) to 10.0mn tonnes in 2013/14 thanks to the greater availability of cattle for slaughter, stable domestic cattle prices, and the ongoing depreciation of the Brazilian currency. As a result of this, we believe the country will be particularly competitive for both cattle and beef exports in the coming months, especially compared to other traditional exporters such as the US and Australia.

We maintain our forecast for Brazil's beef production to increase by 3.0% year-on-year (y-o-y) to 10.0mn tonnes in 2013/14 thanks to the greater availability of cattle for slaughter, stable domestic cattle prices, and the ongoing depreciation of the Brazilian currency. The USDA forecasts an increase of 2.5% in cattle inventories and 1.5% in the calf crop in 2013/14. Local industry sources have reported that farmers have invested in productivity thanks to support from the government in the form of subsidised interest rates, encouraging pasture improvements and the use of quality genetics.

Stable cattle prices and sharply moderating grain prices have helped increase producer margins. The recent depreciation of the real is helping export demand, encouraging production and investment in the sector. In fact, the depreciation of the local currency makes the Brazilian export prices more competitive on global markets, but also enables farmers to earn more real for the same dollar dominated prices.

Growing Herd
Brazil - Cattle Beginning Stocks ('000Heads)

BMI View: We maintain our forecast for Brazil's beef production to increase by 3.0% year-on-year (y-o-y) to 10.0mn tonnes in 2013/14 thanks to the greater availability of cattle for slaughter, stable domestic cattle prices, and the ongoing depreciation of the Brazilian currency. As a result of this, we believe the country will be particularly competitive for both cattle and beef exports in the coming months, especially compared to other traditional exporters such as the US and Australia.

We maintain our forecast for Brazil's beef production to increase by 3.0% year-on-year (y-o-y) to 10.0mn tonnes in 2013/14 thanks to the greater availability of cattle for slaughter, stable domestic cattle prices, and the ongoing depreciation of the Brazilian currency. The USDA forecasts an increase of 2.5% in cattle inventories and 1.5% in the calf crop in 2013/14. Local industry sources have reported that farmers have invested in productivity thanks to support from the government in the form of subsidised interest rates, encouraging pasture improvements and the use of quality genetics.

Growing Herd
Brazil - Cattle Beginning Stocks ('000Heads)

Stable cattle prices and sharply moderating grain prices have helped increase producer margins. The recent depreciation of the real is helping export demand, encouraging production and investment in the sector. In fact, the depreciation of the local currency makes the Brazilian export prices more competitive on global markets, but also enables farmers to earn more real for the same dollar dominated prices.

Still More Weakness To Come
Exchange Rate - BRL/US$ (Weekly)

As a result of this, we believe Brazil will be particularly competitive for both cattle and beef exports in the coming months, especially compared with other traditional exporters such as the US and Australia. We forecast a beef production surplus of 2.1mn tonnes in 2013/14, compared to 1.5mn tonnes on average over the past five years. The USDA forecasts Brazilian beef exports to increase to 1.9mn tonnes in 2013/14, a 7.7% increase compared with 2012/13. Brazil is also set to export 640,000 animals in 2013/14, a 8.4% y-o-y increase.

Brazil will continue to trade aggresivelywith the Middle East and increase exports to Asian countries in particular, where Australia normally has a competitive advantage. The USDA indicated that Brazilian beef exports increased sharply to Lebanon and Venezuela and are set to increase to Jordan, Turkey and. Live cattle exports are still a sensitive issue in Brazil, however, as they limit domestic processing activity from large meatpackers. Governments from Southern Brazil are still considering voluntary restrictions against exports of cattle from their area, especially to be processed abroad.

Impressive Growth In Asia
Brazil - Beef Exports By Country In H113 (Y-o-y % growth)

We calculate that Brazilian beef exports have increased the most in Asian countries between January and June 2013. Brazilian beef exports to Hong Kong and Singapore more than doubled, increasing by 140.0% and 115.7%, respectively. Exports also increased by 98.4% to Iran and 75.9% to the Philippines. This put the country at a significant advantage on Asian markets, where Australia is traditionally the most competitive beef exporter. Still, Brazil has not increased sales to markets that are particularly attached to Australian beef, such as Japan and South Korea. We believe this will not change in the coming months.

Brazil Beef & Veal Production & Consumption, 2007-2012
2007 2008 2009 2010 2011 2012
Beef & Veal Production, '000 tonnes 9,303.0 9,024.0 8,935.0 9,115.0 9,030.0 9,307.0
Beef & Veal Consumption, '000 tonnes 7,144.0 7,252.0 7,374.0 7,592.0 7,730.0 7,845.0
Source: USDA.

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Sector: Agribusiness
Geography: Brazil
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