Porto Alegre, August 26, 2021 – Just like this year, 2022 promises to be a challenging year for the Brazilian pig industry, mainly due to the cost of production, tight margins, and difficulty in advancing the export flow beyond the levels registered in the current year. Internal demand, advances in slaughtering, and exchange rates are also important points to be considered.
Brazilian farmers are at a delicate moment, a scenario that must permeate the closing of 2021 and reach the first half of next year, considering that there will be little relief with the cost of animal nutrition. Corn, the main feedstuff component, is around BRL 100 in several states of the country, and this in the middle of the harvest of the second crop, highlighting that there were sharp losses from the prolonged drought followed by frost. The market has been looking for alternatives to adjust the cost structure, such as increasing the use of wheat, and studying the feasibility of importing Argentine corn. The corn situation tends to become calmer only at the start of the 2022 second crop, considering that the crop of the first semester is traditionally dominated in volume by soybeans. On the other hand, soymeal may find room for lows in mid-February/March, depending on several factors, such as weather, exports, exchange rate, and international prices.
Today, the price of swine finds difficulty in rising consistently to allow the adequate coverage of costs, a factor that ends up discouraging farmers, especially those with a smaller capital structure. Another point is that despite this year’s record exports, the price of live pigs in the Center-South region of the country cannot detach from the range of BRL 6 to 7, which makes it clear that domestic demand is evolving at a slow pace despite attractive prices. The effects of the pandemic are compromising consumption. Large demanding activities such as restaurants, coffee shops, events, hotels and others have not yet been fully resumed. In addition, the population’s income has deteriorated with inflation while the level of unemployment remains high and, in view of this scenario, most families have migrated directly from beef to chicken. What is striking is that on this path the spread between pork carcass and frozen chicken is quite narrow, at historical low levels, that is, pork is very attractive, and at some point, not too far away, the demand for cuts tends to gain space.
The perspective is that live pig prices will find some recovery by the end of the year, with slaughterhouses preparing to meet the demand for year-end festivities, a period when demand is typically stronger. After 2021, the sale of pork must face some difficulty, and prices may suffer, exactly in the period when the production cost must be stressed, discouraging production. The perspective is that slaughtering in Brazil advances discreetly in 2022 due to the current moment and with less optimistic expectations regarding costs. As for production, SAFRAS and Mercado projects 4.790 million tons in 2022, down 0.2% from the forecast of 4.802 million tons in 2021. Pig farmers must work with a lower average weight in the first half of the year compared to the second due to the cost of animal feeding. Installed capacity and previous investments prevent a sharp decline in production despite the difficult scenario.
For exports in 2022, a 3% decline is expected, with a projection of 1.07 million tons, against 1.103 million tons in 2021. The point of attention regarding exports is China, considering that currently more than 50% of Brazilian exports go to the Asian country. China’s export boom tends to weaken as its herd and production advance. The Chinese government already points to a full replenishment of its herd of matrixes, which has not been confirmed by USDA so far. As for USDA, it will revise the numbers for China in October. The Chinese swine chain finds itself with depressed prices, signaling a large domestic supply, a factor that could reduce its impetus for imports over the next few months, as well as leading the country to look for lower prices in future negotiations. The low price of pork will result in greater demand in mainland China, noting that it is the country’s favorite protein. Thus, China must reduce its imports in 2022, but they will remain at good levels, what will happen is the intensification amid the major exporters.
The devalued real tends to benefit shipments from Brazil. Brazil’s interest rate is not the only element that will influence the expectations of agents that determine the movement of the currency and the attraction of capital to the country. The political scenario, fiscal framework, structural reforms, and the global financial market are also on the radar. It is worth noting that 2022 will be an electoral year when usually the progress of major reforms finds difficulty in being passed by Congress. Furthermore, fiscal tightening tends to be more difficult. The dialogue between the three powers must be complicated in this process until the end of elections, thus great volatility is expected for the real. In addition, the Fed may start to raise the US interest rates, leading to the flight of capital from economies regarded as insecure (emerging countries) to the United States, thus strengthening the dollar, which benefits Brazilian commodities in the international market.
Given SAFRAS & Mercado’s export and production projections, Brazilian domestic availability in 2022 will grow by 0.6% to 3.719 million tons against the forecast of 3.698 million tons this year.