Lower cattle prices to fatten Brazilian meatpackers’ margins, analysts say

A decline in Brazilian cattle prices this year and strong demand for the country’s beef exports will widen Brazilian meatpackers’ margins in the short term, according to analysts, though weakness in the domestic market could undercut those gains.

Live cattle prices on the Sao Paulo market are on a downward trajectory, with the “arroba” – a standard 15-kilo measure used as a benchmark – trading late last week at an average of 278.79 reais ($52.87), a significant discount to the first quarter’s 332.23 reais, according to Scot Consultoria, an agribusiness consultancy.

“The margins of slaughterhouses that export has improved,” said Alcides Torres, director of Scot Consultoria. He added that converting these bigger margins into profits would vary from company to company.

Brazil is home to some of the world’s biggest meatpackers, including JBS SA (JBSS3.SA), Marfrig (MRFG3.SA) and Minerva SA (BEEF3.SA).

Beef prices in Brazil have been dropping on the back of a higher number of cattle coming to market as well as the more aggressive negotiating stances adopted by foreign buyers, especially China.

A weaker yuan currency has pushed China, which accounted for almost 53% of Brazilian beef purchases in September, to press for discounts from sellers in the South American nation, Safras & Mercado analyst Fernando Iglesias said.

About 30% of Brazil’s beef production is sent abroad, with the rest consumed at home. But high inflation in the country has cut into consumers’ purchasing power, weakening domestic demand for beef and pushing companies to look to export markets.

Brazil’s beef exports in October have already surpassed those from the same month in 2021, according to government data.

“The record of beef exports in August and September should favor the third-quarter results of the listed slaughterhouses,” said Mary Silva, an analyst at BB Investimentos, adding that Minerva was likely the biggest beneficiary because of its export-heavy business.

($1 = 5.2732 reais)