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Priciest Cows Ever Are Squeezing Meatpackers in Brazil Beef Boom

(Bloomberg) — Brazil’s beef boom has already peaked, at least in terms of profitability.

Exports are surging, led by China, as a weakening currency boosts the appeal of Brazilian shipments. That’s helped shrink cattle supplies and push up prices that meatpackers pay by 50% this year to record highs. The industry is struggling to pass on those higher costs to Brazilian consumers, eroding margins.

The supply of animals for slaughter is expected to stay low next year, keeping cattle prices high, according to Cesar de Castro Alves, agribusiness consultant at Itau BBA.



chart: Brazil cattle price soars on low supplies, strong Chinese demand


© Bloomberg
Brazil cattle price soars on low supplies, strong Chinese demand

While strong overseas demand for Brazilian beef has propped up earnings for JBS SA and Marfrig Global Foods SA this year, record-high cattle costs have meant margins are narrower than a year ago, Alves said.

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“The situation is less comfortable despite the promising outlook for exports to China,” he said Tuesday in a webinar. Margins on domestic sales are already negative, meaning companies that rely more on the local market are faring worse than export-focused packers, according to Alves.

His remarks echo comments from Wesley Batista Filho, JBS South America’s head, who said earlier this month that Brazilian beef operations are “challenging“ amid low cattle supplies. In the third quarter, JBS beef margins in Brazil fell to 7.5% from 13.8% in the previous quarter and 8.5% a year earlier. The company was able to partially offset higher costs with price increases in Brazil and export markets.

In the coming months, beef companies may face difficulties to increase domestic prices due to a tough economic environment in the largest Latin American economy. This year, a government cash stipend helped prop up food sales amid the coronavirus crisis, but the aid may be lowered or end next year.

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