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Brazil meat groups' shares stabilise, amid hopes of scandal blowing over

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Shares in Brazil's key meatpacker sector stabilised amid hopes that the scandal over corruption among food safety officials will blow over, with commentators saying that setbacks were likely to prove short term.

Bradesco BBI acknowledged that his week had been "chaotic" for the country's protein sector, with domestic cattle futures down 7% - amid reports that Brazil-based JBS, the world's top meat group, has suspended all domestic cattle slaughter, and with talk of a slump in beef exports nearly to zero.

Indeed, the furore has presented Brazil with a furore of national importance, given that the country relies on meat for 15% of its overall exports.

However, restrictions imposed by major meat importers - after Brazilian police last weekend raided processing plants over claims that officials had taken bribes to clear rotten or infected meat – should be "short-lived", the bank said, given Brazil's importance in export markets.

'Difficult to replace'

"Brazil represents 60% of the Middle East's chicken imports, 40% of Europe's, 80% of Japan's, and 40% of China's," BBI said.

This was especially the case for chicken exports, given that "importers will find it difficult to replace chicken imports, given that other options, US, Thailand, the European Union, are under threat from the avian flu.

"Beef, on the other hand, could be supplied by the US, Australia, Argentina, and/or Uruguay," as an alternative to Brazilian shipments.

Egypt, the second-ranked buyer of Brazilian beef, revealed on Thursday that while it was delaying imports of meat from the South American country, pending confirmation of safety, it was stopping short of a full ban, according to Reuters.

The likes of China, Hong Kong and Mexico have revealed 30-day suspensions of Brazilian proteins, while the EU, Japan and South Africa have limited curbs to meat from 21 plants under investigation.

'Long-term risks contained'

Separately, Fitch Ratings underlined that the scope of the inquiry by Brazilian police "remains limited to select plants.

"This suggests that the international bans on Brazilian beef exports could ultimately be limited to the plants under investigation and that any spillover to other industry players will be on a case-by-case basis."

The ratings agency added that "suspensions of meat exports from Brazil by a few countries, notably China, are likely to be lifted when Brazilian authorities and the companies involved provide full clarification", adding that "long-term risks" to meatpackers "should be contained".

While raising "significant short-term uncertainties for the sector… the financial impact on larger protein companies should be mitigated by several factors," Fitch said.

Stockmarket reaction

Separately, analysts at BB Investimentos highlighted that a "short-term negative impact will occur for the companies in the industry due to an image risk, and the setback on negotiations undergoing with new markets".

However, they stopped short of changing estimates and recommendations on shares in meatpackers.

Shares in JBS stood 0.8% higher at R$10.86 in lunchtime deals in Sao Paulo, down 9.4% since the police raids were revealed, although this represents an improvement on the 20% slump seen in the immediate aftermath.

Minverva shares were, at R$9.44,up 1.0% on the day, and BRF Foods stock up 1.5% at R$36.11.

Shares in Marfrig, which has underlined that it was not targeted by the police probe, were up 3.1% at R$5.72, and now stand higher than before the investigation was announced.

By Mike Verdin

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