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Hopes for sales to China, US take sting from Marfrig losses

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Meat giant Marfrig Global Foods highlighted the "significant" potential for growth in exports to China and the US, after a "very challenging" start to the year for its Brazil beef division, hit by high cattle prices and soft demand.

Brazil-based Marfrig, which supplies beef to international food chains such as Burger King and McDonald's, unveiled a loss of R$570.9m for the January-to-March quarter, compared with a loss of R$96.4m for the same period a year ago, despite a rise of 14.5% to R$1.34bn in revenues.

The loss reflected in the main an exchange rate hit, thanks to the depreciation of the real, which dropped 21% against the dollar over the quarter, swelling the value of the group's dollar-denominated debt.

However, the group also highlighted that, even with the weak real boosting the value of Brazilian exports, the start of the year "was a very challenging one" for its beef operations, particularly those based in the South American country.

'Weak export sales'

"At the start of the year, the Brazilian economy showed signs of a slowdown, with weak consumer spending and a low consumer confidence index," Marfrig said.

The Brazilian beef operation "was pressured by" elevated fed cattle prices amid "a domestic environment not conducive to the full pass-through" of these costs.

With global cattle prices strong, and currency effects encouraging export, cattle for slaughter are expensive in Brazil. Calf prices in Brazil reached record highs by the end of March, according to research institute Cepea.

Meanwhile, on export markets, Marfrig said that buyers in "major export destinations reduced their purchases.

"The weak performance of the world economy combined with institutional issues in Russia and Venezuela, two of the main destinations for Brazilian beef, led to weak export sales."

China, US hopes

However, the group said that domestic market conditions had "improved" into the current quarter, during which exports had seen a "gradual volume upturn" too, with a recovery in sales to the Middle East and Russia.

Indeed, Marfrig flagged "important opportunities for strengthening export demand by the end of this year", and longer-term, a boost too from improved access to the Chinese and US markets.

Beef trade between Brazil and China is expected to resume in May, after being closed in 2012 after a single finding of BSE, or mad cow disease, in the state of Parana.

Marfrig also hinted at a change in policy from the US, which currently bans imports of raw beef from the Brazil over disease concerns, although Brazil is a major exporter of cooked beef to the US.

"The potential opening of the US and China to Brazilian beef could represent a significant volume driver in the medium term," while opening doors to other markets such as Canada, Japan and Mexico, Marfrig said.

"We believe our global platform puts us in a good position to seize these opportunities."

Marfrig shares stood 0.2% higher at R$4.37 in late seals in Sao Paulo.


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