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Drought Hits Corn in Brazil; Feed costs could reduce meat industry margins

By Nayara Figueiredo and Roberto Samora

SAO PAULO (Reuters) – Dry weather and sowing date are weighing on Brazil’s second maize crop this year, reviving fears of another rise in feed prices like the one that hit large meat packers. after the 2016 drought.

High prices convinced Brazilian farmers to plant their second corn crop outside of the ideal weather window this year. But the crop was hit by the country’s worst drought in five years, reducing yields.

Given growing demand in world grain markets, a maize shortage could reduce profit margins in Brazil for some of the world’s largest protein producers, including JBS SA and BRF SA.

JBS and BRF, which report earnings later Wednesday, declined to comment on the pressure on margins from rising animal feed costs.

JBS’s net income plummeted 92% in 2016, in part due to rising feed costs in Brazil, while BRF’s annual results were in a loss.

Corn represents 40% of the total cost of production of pork and chicken, said Jorge Lima, executive of Sindicarne / ACAV, a lobby group for the meat industry in the state of Santa Catarina.

He said there are reasons for concern over domestic corn prices, which more than doubled last year, to a record 100 reais per 60-kilo sack. The prices of other feed ingredients such as soybean meal have also increased.

To mitigate the problem, meat companies pressured the Brazilian government to lower grain import tariffs from vendors outside the Mercosur trade bloc and eliminate other taxes on the industry.

Ricardo Santin, president of the ABPA national meat lobby, said companies are better prepared now than they were in 2016, when the rise in corn left the sector reeling.

“Corn imports are recovering and there is a real push to replace some of that cereal with wheat,” Santin said.

(Report by Nayara Figueiredo and Roberto Samora in São Paulo, Written by Ana Mano, Edited in Spanish by Gabriela Donoso)

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