Domestic meat demand is still a question mark to the market

    63

    Porto Alegre, March 12, 2021 – The projections for the year 2021 are not positive for the Brazilian economy. Although vaccination has started, the tendency is that the country will find it difficult to get out of the pandemic and later to present an orderly resumption of economic activity. The need for a new lockdown in much of the country is a blow from the economic point of view. The expectation is that the excess liquidity present in the financial market will seek economies with a better-consolidated recovery process, that is, countries whose vaccination is more advanced, allowing a consistent recovery process with a lower risk of paralysis due to the collapse of the health system.

    In the meat sector, domestic demand becomes a major problem for the beef chain. The cost of the raw material (fattened cattle) is at its peak, and meat-packers are unable to pass this additional cost to the production chain. In other words, they have a negative operating margin. During the week, the exchange rate movement gave a boost to the meat-packers accredited to export to readjust their prices in the domestic market, considering an improvement in the margin with the devaluation of the real. The problem is that most Brazilian meat-packers operate only in the domestic market. It becomes quite common to reduce the slaughtering capacity to mitigate the effects of the inflation of raw material. Another strategy is the stoppage of some industrial plants, through extended vacations, a common measure at the beginning of the year.

    Basically, the average consumer is unable to maintain beef consumption, which is already at a very prohibitive level. With the current macroeconomic conditions, more aggressive highs in beef in both wholesale and retail are not feasible. The transition process towards chicken becomes evident in this period. The recent reaction of wholesale chicken coupled with the fall in beef prices, mainly noble cuts, confirms this movement. Pork appears as an intermediate option, replacing prime beef cuts.

    SAFRAS Latam