Brazil’s Beef Exports Drop 22% as Meatpackers Face Margin Squeeze

By Brazil Stock Guide — Brazilian beef exports fell 22% in the third quarter from the previous three months, as restrictions on shipments to China and weaker processing margins added pressure on the country’s meatpacking industry.

Beef shipments totaled 619,000 metric tons between July and September, down 28% from a year earlier, according to government trade data compiled by the bank. Export revenue declined 24% quarter-on-quarter to $3.88 billion, despite average prices remaining 12.2% above year-earlier levels, BTG Pactual said in a report.

Bank attributed much of the decline to China’s beef import quota being filled, limiting shipments to Brazil’s largest export market. Exports to the United States began recovering in September following the removal of an out-of-quota tariff. The bank expects shipments to increase further in October and November.

The decline in beef exports is particularly significant for Brazilian meatpackers because export sales typically generate higher margins than domestic sales, meaning a shift in the sales mix could weigh on profitability.

Poultry exports proved more resilient, rising 13.6% year-on-year to 1.37 million tons in the third quarter, while revenue increased 25.9% to $2.71 billion.

Higher volumes, however, failed to offset rising feed costs and weaker domestic chicken prices. BTG’s measure of Brazilian domestic poultry processing spreads fell 9.1% quarter-on-quarter.

Pork producers faced even steeper pressure, with domestic processing spreads falling 19.2% from the previous quarter and 42.1% from a year earlier. Pork export revenue declined 6.4% quarter-on-quarter to $815 million.

In the United States, beef processing spreads improved 5.6% during the quarter, helped by lower cattle prices. BTG cautioned that the recovery may prove temporary, citing tight cattle supplies and persistently low capacity utilization at processing plants.

U.S. poultry spreads, meanwhile, declined 16% quarter-on-quarter as higher feed costs and lower selling prices squeezed profitability. BTG said the combination of weaker Brazilian beef exports and declining poultry and pork margins was likely to weigh on third-quarter earnings, with little evidence so far of a sustained recovery across the industry.