BMI View: We continue to forecast poultry production outperforming other sub-sectors to 2017/18, based on strong export growth, lower feed costs and its price competitiveness over pork and beef. We have downgraded our livestock production forecasts for 2013/14 as a result of lower 2012/13 estimates, though the longer term picture remains unchanged.
We believe that poultry and pork production declined in 2012/13 by 2.7% and 1.5% respectively, mainly as a result of high feed costs. The hog sector was also hit by Ukraine's decision in March 2013 to ban pork imports from Brazil, as the European country is the largest importer of Brazilian pork. Contrastingly, beef production rose by 4.0% in 2012/13 due to greater availability of cattle for slaughter and strong exports, largely as a result of the weak Brazilian real.
Livestock production will rise in 2013/14, due to low feed costs, strong domestic consumption growth and, in the case of poultry and pork, strong export growth. We forecast poultry production to increase by 3.2% to 12.7mn tonnes, pork by 3.7% to 3.4mn tonnes, and beef by 3.0% to 10.0mn tonnes.
We see stronger margins for domestic livestock companies in 2014, as global and domestic grain prices have eased. Brazil has had a strong grains harvest in 2013/14, with both corn and soybean output above the five-year average. The global grains market is also relatively well supplied.
|Retreat From Last Year's Levels|
|Front-Month Soybean (LHC) & Corn, USc/bushel (monthly charts) & BMI Price Forecasts|
Domestic meat consumption growth will be strong in 2013/14, especially for poultry. We forecast poultry consumption growth of 2.8% to reach 9.1mn tonnes, compared with 1.2% and 0.5% for pork and beef respectively. Poultry consumption growth will outperform both pork and beef due to its cheaper price, while beef consumption growth will lag for the opposite reason. An influx of richer tourists due to the 2014 Brazil World Cup will add to meat consumption growth in 2014.
The weak real has incentivised livestock exports in 2013/14, which will increase production this season and in 2014/15. Following a 12% y-o-y drop in exports in 2012/13 as a result of a ban from Ukraine, pork exports will recover strongly in 2013/14. Ukraine has now allowed Brazilian pork imports, and Brazil's competitiveness will remain boosted by a weak real (see 'BRL To Head Lower In Coming Weeks', June 2). The country's poultry sector has benefitted from increased exports to China, where the recurring avian flu outbreaks in 2013 and 2014 have favoured imported meat consumption. Brazil's poultry exporters are now looking to establish new markets in countries such as Myanmar, Pakistan and Nigeria.
|Brazil - Exchange Rate (BRL/USD)|
Brazil's beef exports in 2014/15 are under threat, however, following a case of bovine spongiform encephalopathy (BSE) in Mato Grosso state in May. Egypt has banned beef imports from the state in question, while Peru has banned imports from the whole of Brazil for 180 days. Marfrig, Brazil's third biggest food processing company, has also said that Iran and Algeria have both banned beef imports from Mato Grosso state. Until May, Brazilian beef exports had been growing in line with pork and poultry. However, as a result of the as yet isolated BSE case, we believe that beef exports are likely to remain flat on last year's level.
|Egypt & Iran Key Importers|
|Brazil Frozen Beef - Exports By Destination In 2013 ('000 tonnes)|
Livestock production will grow considerably over our forecast period to 2017/18. From 2012/13 to 2017/18, we forecast production growth of 32.1%, 21.8% and 17.1% for poultry, pork and beef respectively. The factors behind Brazil's revival in production in 2013/14 will continue to support the meat sector in the coming years. Strong international and domestic demand will drive production and exports alike, while we forecast that moderate grains prices will keep production costs low. We also believe that the country's infrastructure will improve, which will allow more efficient distribution.
|Poultry Production, '000 tonnes||12,308.0||12,700.0||13,398.5||14,269.4||15,268.3||16,260.7|
|Poultry Consumption, '000 tonnes||8,832.8||9,080.2||9,402.2||9,742.0||10,100.5||10,479.0|
|Pork Production, '000 tonnes||3,280.0||3,400.0||3,536.0||3,677.4||3,842.9||3,996.6|
|Pork Consumption, '000 tonnes||2,696.7||2,729.1||2,775.5||2,835.0||2,898.9||2,967.4|
|Beef & Veal Production, '000 tonnes||9,675.0||9,965.2||10,363.9||10,674.8||10,995.0||11,324.9|
|Beef & Veal Consumption, '000 tonnes||7,884.2||7,923.6||7,975.1||8,042.3||8,114.1||8,190.6|
|e/f = BMI estimates/forecasts. Sources: USDA.|