Brazilian cattle prices extended their "staggering" decline,
amid fears that the country will not be able to sustain a recovery in shipments
last month, when volumes recorded year-on-year growth for the first time since
the Operation Weak Flesh scandal.
An index of fed cattle prices in the state of Sao Paulo fell
below R$125 for the first time since August 2014, research institute Cepea
The decline extended a drop in values from early-2017 highs
above R$150 - a drop accelerated by the announcement in March by police of an
investigation into alleged corruption among food safety officials, prompting a
series of countries to ban imports of Brazilian beef.
In June alone, average fed cattle prices "dropped a
staggering 17.9%" year on year, Cepea said, terming this this the "sharpest
price drop" on records going back to 1997.
'Return to normal'
The continued price decline came even as beef exports from
Brazil, the world's top shipper, showed signs of recovery, rising back over
100,000 tonnes to 100,200 tonnes, to record growth of 11% month on month and
3.8% year on year.
"After an uninspired April, exports seem to return to normal
as volumes have recovered for the second consecutive month," said Luciana
Carvalho, analyst at Brazilian broker BB Investimentos.
However, the bank also flagged the headwind to values from
further curbs late last month by the US on imports of Brazilian beef, over food
The US Department of Agriculture flagged a "system-wide
problem" in Brazil's inspections, citing violations involving raw beef from
seven Brazilian processing plants.
'Not an easy task'
The US suspension is "likely to contribute to a negative performance
ahead" for Brazilian beef exports, Ms Carvalho said.
"Although Brazilian authorities have moved fast to clarify
the sanitary issue, which has led to the US decision", reversing it "will not
to be an easy task given the strong US [beef] lobby and other trade commercial
Indeed, the broker flagged "downside risks" for exports
ahead, given the risk of the US move denting further international confidence
in Brazil's beef industry, and the potential for the US to steal market share
in the key Chinese market.
"The recent opening of the Chinese market for US beef
Furthermore, Brazilian cattle prices face continued pressure
from the knock-on effects of scandals at JBS, the country's top meatpacker, which
have prompted the company into a series of emergency measures to bolster its
These include asset sales, including the disposal of some
South American beef assets to rival Minerva, shutdowns at some Brazilian
processing plants, and delays to paying producers.
"After the Weak Flesh operation, [JBS] reduced sharply" its
slaughter capacity, Cepea said.
This meant that abattoirs remaining open had "higher
bargaining power with producers", allowing them to force cattle prices lower.
Both Minerva and rival Marfrig have reopened mothballed
capacity in a drive to exploit the higher margins fostered by the market imbalance.
BB Investimentos contrasted a 12% rise in Minerva shares so
far this year with a 42% drop in shares in JBS.