In the red, egg producers start to discard birds

 
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The sharp increase in the price of grains used for animal feed are squeezing profit margins in the Brazilian poultry industry. The situation is worst, at least in the short term, for egg producers who are now operating in the red. Meat processors are still trying to rely on the favorable exchange rate for exports to keep afloat, but weak demand from the Middle East and resistance to adjust supply in the farms are clouding the scenario.

"Everything is going to get tighter than we imagined," said César Castro Alves, an analyst at Itaú BBA's agribusiness consultancy. The bank's calculations show that the gross margin of chicken farming worsened in August and is 4% negative. According to Mr. Alves, companies once again increased the offer of chicks for fattening on farms, which may represent more chicken supply in the coming months. This will make price readjustments to offset costs more difficult. In addition, there is no sign of drop in grain prices.In laying farms, the picture is even worse because, in addition to the more expensive feed, the price of eggs has fallen sharply in recent months. Mantiqueira, the largest egg producer in the country, started operating with a negative margin of 20%, in comparison to positive margins between 10% and 12% last year. "There will be an adjustment because the loss is unsustainable," Leandro Pinto, the company's president, told Valor.

To restore margins, Mantiqueira discarded laying hens supposed to produce until October. "Every batch that does not generate a contribution margin will be reduced," he stressed.

The move was started two weeks ago to reduce supply in around 20% starting September. Mr. Pinto believes that the adjustment is temporary and the situation will normalize in the medium term, so the company is already replacing the birds with new ones, which will start laying in 120 days.

With this production adjustment the hope is that eggs price may recover. Since April, when prices hit a record amid a jump in consumption at the beginning of the quarantine, the average price of the box with 30 dozen of white eggs dropped 23% in Bastos (SP), an important producer pole, according to the Center for Advanced Studies in Applied Economics (Cepea).

While eggs became cheaper, the price of the feed, responsible for about 65% of the poultry production costs, only went up. In August, the average price of a bag of corn is R$56.14, according to the Esalq/BM&FBovespa...

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