May 17, 2018

Pork Producers in Mato Grosso Losing $20 per Animal

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

Pork producers in Mato Grosso are facing a difficult economic future. Hog prices have declined just as input costs have risen. As a result, the average hog producer in Mato Grosso is losing approximately R$ 70 for each hog that they market (approximately $20 per animal).

According to the Hog Producers Association of Mato Grosso (Acrismat), corn represents 70% of the feed ration for hogs and a smaller than expected Brazilian corn crop has resulted in rising corn prices. Drought has impacted the safrinha corn crop in the state and prices have risen to as much as R$ 30 per sack (approximately $3.90 per bushel).

Soybean meal represents 20% of the feed rations and meal prices have risen substantially due to a severe drought in neighboring Argentina which is the largest soybean meal exporter in the world. World soybean meal prices have risen significantly resulting in high domestic meal prices. Soybean meal in the state is selling for R$ 1,127 per ton (approximately $400 per ton).

At the same time that production costs are rising, hog prices in Mato Grosso are declining. Domestic hog prices are down due to two factors. The first factor was the tainted meat scandal that rocked Brazil in March of 2017. After the scandal broke, many countries temporarily banned the importation of Brazilian meat. Most of those countries have subsequently reopened their markets to Brazilian meat imports.

The second factor was Russia's banning of Brazilian pork starting in November of 2017. Russia claimed that a banned growth hormone was found in Brazilian pork. Brazilian officials have subsequently met with their Russian counterparts to assure them that Brazilian pork is safe, but Russia has not yet resumed importing Brazilian pork. Russia accounted for 30% of Brazil's pork exports in 2017, but they have not imported any pork thus far in 2018.

Acrismat reported that the current price for hogs in the state is R$ 2.53 per kilogram, but the cost of production is R$ 3.30 per kilogram. Therefore the deficit is R$ 0.77 per kilogram resulting in a loss of R$ 70 per animal of 100 kilograms (approximately $20 per animal). Prior to Russia's ban on Brazilian pork, the average price was approximately $4.00 per kilogram, which was enough to turn a profit for hog producers.

The government has taken several steps to try to help hog producers in the state. The state lowered the ICMS tax from 12% to 6%. This is a circulation tax that must be paid if a product is produced in one state but sold in another state.

Another step they have taken is to increase the amount of corn each producer may purchase from the federal government during auctions conducted by Conab. The limit per producer has been increased from 10 tons to 17 tons. These auctions are offered when the market price of corn is above the minimum price set by the government. This action was offered to mostly small and medium sized hog producers.

The situation may improve when the safrinha corn harvest starts in several weeks. The increased supply of corn is expected to put downward pressure on domestic corn prices.