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Brazil’s Chicken Farmers Feel the Squeeze 

Brazil’s Chicken Farmers Feel the Squeeze 

(Bloomberg) --

Prospects for global meat producers seem to look bright. A deadly pig disease is pushing up Chinese demand and global prices of pork to beef. But for Brazilian chicken companies, pricey grain is eroding the windfall.

Brazil is shipping record volumes of corn this year amid bumper production. A weaker real is also increasing the nation’s competitiveness in the global market. While the country’s grain looks cheap to importers, the increase in demand means it has become expensive for local companies that use it as livestock feed. For poultry producers such as BRF SA and JBS SA’s Seara unit, higher costs may mean a margin squeeze.

The ratio of chicken to feed costs -- a measure of industry profitability -- has slumped to the lowest in eight months, according to data compiled by Bloomberg. Most of the cost of producing the birds comes from feed.

Brazil’s Chicken Farmers Feel the Squeeze 

Brazilian corn prices have risen close to 20% since the start of September to the highest since June 2018 amid strong exports and the prospect of smaller production next year. Meanwhile, domestic chicken prices remained almost unchanged over the period amid weaker-than-expected export volume and rising domestic inventories, according to Cepea, the University of Sao Paulo research arm.

The nation’s farmers sold 65% of the 2018-19 corn crop as of Oct. 5, and have been hoarding the rest in anticipation of higher prices, according to Paulo Molinari, an analyst at consulting firm Safras & Mercado. That could keep costs elevated for chicken producers even amid comfortable stockpile levels.

"Brazil has ample supplies, but the stockpiles are on farms,” Molinari said. “If they were in consumers’ hands, prices wouldn’t be rising that much.”

Brazil’s Chicken Farmers Feel the Squeeze 

The margin squeeze is a bigger threat for poultry output than hogs because the proteins face different demand conditions, said Juliana Ferraz, an analyst at Cepea. Chicken exports have declined in the past three months, increasing inventories. In contrast, pork shipments and prices are strong in the wake of the spread of the African swine fever, which is decimating hog herds in China and boosting the need for imports.

"Pork prices are rising at a much higher intensity than corn and soy meal, but the outlook for chicken producers is not so comfortable as shipments have been below expectations," Ferraz said in a telephone interview.

To contact the reporter on this story: Tatiana Freitas in São Paulo at tfreitas4@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Millie Munshi

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