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Reopening of China, US markets to lift Brazil beef exports to 10-year top

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Brazilian beef exports will hit a 10-year high next year, encouraged by the opening up of Chinese and US markets – but elevated cattle prices will limit the ability of the country's meat packing giants to exploit the boom.

Brazilian beef exports will hit 9.52m tonnes next year, and the highest figure since 2007, the US Department of Agriculture bureau in Brasilia said in their first forecasts for 2017.

The rise, of 186,000 tonnes from volumes expected for this year, will be "driven by higher demand from Asia, mostly China", the bureau said.

Brazil's exports to China have soared since Beijing last June ended a three-year ban on imports from the South American country, imposed after a case of bovine spongiform encephalopathy (BSE).

And the bureau said that "our trade contacts are optimistic that beef exports will continue to increase in 2017 after the significant increase in the number of beef plants authorised to export to China."

'Still challenged'

Shipments to will rise too to the US, following an agreement last month to open up to each other's beef for the first time in more than a decade.

The bureau "forecast 95,000 metric tons of Brazilian beef exports to the US in 2017, both fresh and processed".

However, the country's beef exporters - which include JBS, the world's biggest meat packer, Marfrig and Minerva – will see profits from the export rise curtailed by elevated cattle costs.

"The sector is still challenged by limited supplies of cattle for slaughter, and volatility of the exchange rate, which is expected to pressure packer's profit margins in 2017."

'Limited cattle supplies'

Brazilian cattle slaughter, expected to hit a 12-year low of 37.60m head this year, will recover a little in 2017, to 38.26m head, the bureau forecast.

However, that would remain the second lowest figure since 2004, and represent a continued hangover, bureau said, foreseeing a "continued outlook of limited cattle supplies for slaughter in 2017".

It cited as reasons for the squeeze in supplies a "high retention of cows" by many farmers, in a drive to build up the herd in the face of strong beef demand, which looks set to revive in the domestic market, as well as for exports.

"In 2017, the difference between retail beef cuts and chicken is expected to drop due to the high costs of producing chicken and pork.

"Consumers' confidence is also expected to improve next year as the Brazilian economy returns its growth path."

'Cattle prices to soften'

The comments tally with those earlier this month from Fitch Ratings, which said that "it appears that the Brazilian market is close to reaching a bottom from an economic perspective, which should lead to more favourable domestic demand dynamics".

However, Fitch signalled more benign forecast for meat packers' margins, saying that "cattle prices are projected to soften in Brazil during 2017 as the availability of cattle for slaughter increases.

"The herd size is at a record level of nearly 220m head."


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