SAO PAULO, Nov 6 (Reuters) - Higher grain costs are seen
weighing on protein processors like BRF SA and JBS SA
when they report third quarter results next week even
as export markets stayed strong in the three-month period.
While China remained a key export destination buying
ever-larger meat volumes from Brazil and other origins, it is
now paying lower premiums, according to a Nov. 2 report from
HSBC analyst Alessia Apostolatos.
"The weaker Brazilian real is a double-edged sword that has
made Brazilian protein exports more competitive globally, but
also increased input costs," Apostolatos said. "China has been
able to negotiate lower prices and absorb higher quantities as
it continues to face African swine fever (ASF) pressures."
Chicago soy futures hit a four-year high this week as
dry weather spurred supply concerns in top producer
Brazil. Corn, another key livestock feed
ingredient, soared 46% in local currency over the third quarter.
But the impact of higher input costs is different for JBS
and BRF, given their distinct product portfolios and production
base, Banco do Brasil analyst Luciana Carvalho said in an
interview on Friday.
In the United States, where JBS gets 70% of its sales, the
impact on third-quarter margins from higher grain costs was
probably less significant because of still ample cattle
availability, Carvalho said.
For BRF, which is focused on chicken and pork, higher feed
prices could be more of an issue though the company's corn
inventories, typically lasting three or four months, provide a
cushion, she added.
Higher costs in Brazil compelled meatpackers to shift toward
higher-margin exports and processed foods that sell for more. As
such, both JBS and BRF benefited from the Brazilian government's
cash aid program during the pandemic, which allowed families to
spend the extra income on food.
On a less positive note, BRF still faces import restrictions
imposed by Saudi Arabia, weighing on Halal food sales in the
Middle East. For JBS, tight cattle availability in Australia and
Chinese export restrictions are key issues, Carvalho said.
At the same time, strong demand for pork on domestic and
international markets, especially from China, should offset
higher feed costs and protect margins in Brazil's hog processing
industry going forward, Carvalho said.
In October, all Brazilian meat companies underperformed the
benchmark Bovespa index as record cattle, corn and soy prices
BRF reports quarterly earnings on Nov. 9 while JBS reports
on Nov. 11.
(Reporting by Ana Mano
Editing by Marguerita Choy)