Pig farmers' margins in Brazil continue to decline

The current scenario is slightly better than the one recorded a year ago, even if the situation is still difficult, with production adjusting in a “forced” manner due to the long exposure to losses of a large number of manufacturers since the beginning of 2021. One of the main concerns of the sector is the sudden ups and downs in prices, which also happened in the first 30 days of this year. Retailers are often more reluctant to purchase due to inventory levels, and as a result MEAT processors' profits are under pressure, which is quickly affecting the livestock market.  

      Adjustment of production is a long process due to the production cycle. Slaughter in 2023 should be 47.92 million heads, according to SAFRAS & Mercado, up 1.48% from last year, when 47.35 million heads were sent for slaughter. it is worth noting that from 2021 to 2022, the growth was 2.18%.

      Production costs remain at a high level, and this situation may change only in the second half of the year with the entry of second crop corn into the market. Corn is the main component of feed. The soybean crop is at a record high and transportation will be a major challenge as freight rates are expected to rise across the country. It is also worth noting that corn carryover stocks are low due to Brazil's record exports, which is also a price support variable. On the other hand, the price level for soybeans and meal should decrease during the quarter.

      Due to high costs and shrinking margins, pig farmers are likely to start bringing lighter animals to market in the next few months, which could reduce pork availability and price formation. However, it is worth noting that exports are also an important variable in the composition of domestic supply. In terms of exports, important elements such as China's purchasing intensity, exchange rate, and international competition need to be tracked.

      The trade ratio will remain unfavorable in the short to medium term and will be extended into the second half, a period when the supply of pork is more balanced and domestic consumption is more active, meaning that pig production will experience better times in the second half of the year. 2023 Of course, with a decrease in corn prices in the second half of the year, the average weight of animals tends to increase. Brazilian exports to CHINA should fall in the next few months, and the sector will need to diversify supplies so that there is no negative impact on the domestic market. China is currently suffering from an oversupply of pork and underpricing, which should weigh on its performance in the international market, both in terms of volume and price per ton.