Brazil: Chicken farming crisis deepens in last two months

The market design for Brazilian chicken farming in 2022 was pointing to a year of tight margins, but there were profits, which albeit small, allowed for accounts to close in positive territory, unlike the situation of pig farming. For the last quarter of the year, this picture has changed substantially, with symptoms of oversupply in the domestic market and a consequent decline in slaughtered and live chicken prices. The margins, until then positive, have turned negative, with reports of losses, mainly in the South Region.

The main factors that lead to this scenario are listed below:

Resumption of Ukrainian exports. Ukraine is going through a delicate moment. The exits to the Black Sea are under Russian control, and exports have become more difficult, but there is a great Ukrainian advantage over other exporters, such as the ability to sell its beef production chicken via road transport. Ukrainian chicken is very competitive in the European market, mainly in the Netherlands. The most sold cut is chicken breast, precisely the one that suffers the most from oversupply in the Brazilian market;

Between the months of September and October, there was a notable increase in the supply of beef in the Brazilian market. With falling wholesale and retail prices. At that moment, special sales began to come out in large retail chains for prime cuts of beef. The higher-income population began to increase beef consumption, which generated negative effects on the demand for other proteins of animal origin;

Increased housing for breeding chicks. Given the great consumption potential in the domestic market during the last quarter, there was an increase in the housing of breeding chicks between the months of August and September. In an environment of falling average export prices, with less significant volumes of chicken exports, there was a noticeable increase in domestic availability.

The downward movement in chicken prices occurs more intensely in wholesale frozen cuts. For live chicken, the market has symptoms of slowdown, but the picture is more worrying for farmers than the industry, for two reasons. The first is that the export account is still advantageous, even with the decline in average chicken prices in the international market. The devalued real still creates good competitiveness for Brazilian chicken. In addition, the conversion of the dollar into the real results in significant revenue.

The second factor that aggravates the condition of farmers, especially the independent ones, is the maintenance of animal nutrition costs at a high level. Soymeal and corn prices are still responsible for this environment. The maintenance of high costs, added to the decline in live chicken prices throughout the second half of the year, points to a deterioration in margins, which are currently negative.

The first half of December will be an important period for the recovery of slaughtered chicken prices, and possibly of live chicken prices. In this regard, the gain in the competitiveness of chicken compared to other proteins is an important factor. Besides, the sector also has good domestic demand, considering the peak of consumption in the domestic market. Beef prices are on the rise, while pork carcass prices have slowed down.

The highlight in the rising prices of the meat industry is beef hindquarter. In the São Paulo market, the partial average of a beef hindquarter is BRL 21.55 in November, emphasizing that these are the noble cuts, which traditionally have the population’s preference for barbecue. Forequarter shows a more timid upward movement, with an average price of BRL 16.11 per kilogram in São Paulo.

Pork prices settled down in November. Special carcass reached a partial average price of BRL 10.54 per kilogram in November. This period is notably the time of year with the highest demand for pork. This protein has replaced beef cuts very well in 2022. Excess production made pork prices more competitive over the year.

Frozen chicken is the sector’s great exception at the moment, as the increase in the housing of breeding chicks between the months of August and September made it evident that there was a surplus supply in the Brazilian market. Chicken exports are still considerable, with the country moving quickly toward a historic record, both in volume and revenue. However, the scenario becomes worrisome as the operating margin becomes negative in many states, especially in the South, a region where animal nutrition costs are more pronounced.

In this case, chicken has been gaining competitiveness in comparison with competing proteins. At the moment, chicken is 2.87 times more affordable than beef hindquarters. Around 2.15 times more affordable than beef forequarter. Frozen chicken is 1.40 times more affordable than special pork carcass. The increase in monetary circulation in the last two months guarantees a good slice of consumption for the three proteins. A recovery in chicken prices is expected in December, driven by domestic consumption.

Tags: Ukraine, export, Brazil, prices, chicken, Market, breeding chicks