May 27, 2016

Brazilian Poultry and Hog Producers being squeezed on all Sides

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Brazilian poultry and hog producers are being squeezed on all sides with high feed costs and slack demand due to the country's severe economic crisis. The scarcity of corn in southern Brazil has resulted in corn prices as high as R$ 60.00 per sack ($7.80 per bushel), if you can find the corn. Poultry and hog producers have been forced to either import corn from Paraguay or Argentina or reduce operations and even shut down production facilities due to the high cost of feed.

The consulting agency Noticias Agricolas reported this week that at least four poultry producers with operations in six Brazilian states are reducing production, curtailing activities and even giving collective holidays to their employees. For independent producers who cannot collectively bargain for corn, the situation is even worse. Many independent producers have decided to shut down operations instead of losing more money on their livestock. Even if producers reduced their production, the consumer demand is so weak that the prices for poultry and pork would probably not move higher.

The Poultry Producers Association of Santa Catarina (ACAV) indicated that some operations shut down their facilities 90 days ago with no indication when they would resume operations. They still owe money for past purchases of corn and they cannot afford new purchases.

The president of the Syndicate of Poultry Industries in the State of Parana (Sindiavipar) indicated that this is a common problem all across the industry. The central problem is high prices for corn, high prices for soybean meal, and even high prices for feed wheat.

In the city of Cascavel in western Parana where safrinha corn is both produced and consumed, the price for corn is currently in the range of R$ 40 per sack ($5.19 a bushel), which is more than double last year's price of R$ 19.43 per sack (approximately $2.50 per bushel). In Campo Novo do Parecis in western Mato Grosso, where corn is produced but very little is consumed, the average price for corn is R$ 36.19 per sack ($4.70 per bushel) compared to May of 2015 when it was R$ 16.77 per sack ($2.17 per bushel).

The Brazilian government has been trying to help ease the situation by selling government owned stocks of corn. The government sold 500,000 tons of corn earlier this year and Conab recently announced that they would sell an additional 160,000 tons in the coming days. The sale would be for corn stored in Mato Grosso and it would be destined for small farmers in southern Brazil and in northeastern Brazil.

The selling price of the corn in Mato Grosso would be R$ 17.50 per sack ($3.50 per bushel) and the limit would be 6 tons per farmer per month. The domestic consumption of corn in Brazil is about 150,000 tons per day, so the sale would equate to a one day supply of corn. The government currently has 900,000 tons of corn in storage, or 6 days' worth of usage. After the sale of 160,000 tons, they plan on selling an additional 600,000 tons during the year.

In addition to high corn prices, soybean meal is also very expensive in Brazil due to the rising price of soybean meal on the international market. Desperate for an alternative, some producers are looking at feed wheat as an alternative for corn, but the supply of feed wheat is also tight, which has driven up the price for feed wheat as well. Wheat farmers are anxious to sell their feed wheat because the quality of the wheat is not suited for milling. The last wheat crop in Brazil was of poor quality because of excessive rainfall during harvest.