China brings down Brazilian meatpackers' profitability
On the eve of the Chinese New Year, South American beef exporters are still trying to recover from the cold water thrown by Beijing. Due to the massive renegotiation of export contracts to the Asian nation, Brazilian meatpackers are already seeing negative margins in sales to their largest customer. They hope that when celebrations end the Chinese market will start to balance amid a still restrained pork supply.
Among Brazilian meatpackers, especially small and medium-sized ones, the mood hardly resembles the euphoria seen a few months ago, when beef prices boom seemed endless in China. "It was a fever, but now the bill must be paid," a trader says.
Sales to China are in the red, the CEO of a Brazilian company says. At the peak, the contribution margin reached 20%, but the new and renegotiated contracts bring a 8% to 9% margin. "At the end of the day, net result is negative," complains the same person.
Chinese importers have been cutting in at least $1,000 per tonne the prices of cargoes that were already in the ships or even in the country's ports, sources say, and $2,500 discounts were also reported.
The beef front quarter was exported for $7,200 per tonne, a level that found resistance among the country's consumers. Current prices are closer to $4,200, a level considered insufficient to underpin fat cattle's prices, sources say. In São Paulo, a benchmark for prices across the country, animals ready for slaughtering are traded at R$192.60 per arroba (15 kilos). "Considering today's animals, we must receive $4,800 to $5,000 per tonne [in China]," says a meatpacker's executive.
The market generally admits that soaring prices at the end of the year reached unrealistic levels - both in China and Brazil. Demand is resisting this scenario of increased prices. But that was not the only factor. The Chinese government's effort contributed to that.
Amid the government's efforts to quell...
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