Brazil Meat Producers Mixed After Nation Halts Chicken Exports

Published 19 July 2024, 09:23:09 [BFW]
By Leda Alvim

(Bloomberg) -- Brazilian meat producers BRF SA, Marfrig Global Foods SA and JBS SA trade mixed in Sao Paulo on Friday as the nation halted chicken exports to the European Union and Argentina after a case of Newcastle virus was confirmed on a farm in Rio Grande do Sul. 

• The nation is also suspending exports of chicken, eggs and other poultry-based products from the southern state, which borders Uruguay, to other countries including China, India, South Africa and Mexico
  • NOTE: Brazil Halts Chicken Exports to EU and Argentina on Virus (3)
• BRFS3 recovers from Thursday’s plunge, rising 1.3%; JBSS3 gains 0.9%, while BEEF3 dips 0.6% and MRFG3 falls 0.4% as of 10:11 a.m. in Sao Paulo
• LATEST: Brazil Declares Animal Health Emergency in Rio Grande do Sul

ANALYST COMMENTARY

JPMorgan

• “We believe that some investors may not be willing to catch a falling knife, particularly with this negative newsflow likely presenting some overhang for the next few weeks,” writes analyst Lucas Ferreira
• Adds that, based on the last occurrence of the Newcastle disease in Brazil in 2006 and the rebound following the initial outbreak, “we think today’s underperformance could be pricing in a large chunk of this risk”
  • “Even understanding the situation is still fluid and 2006 trade consequences of ND may not fully repeat this time, we’d still be buyers on further weakness,” he adds

Lucror Analytics

• “We believe BRF’s expected results recovery might be delayed if the disease spreads to other regions in Brazil, which would trigger further export bans,” writes credit analyst Josseline Jenssen
• Analyst moves the credit bias on BRF to stable from positive, while its trade recommendation on the BRFSBZ curve is changed to hold from buy, given the uncertainty over the situation, Jenssen adds

Safra

• Analyst Ricardo Boiati notes that, considering a potential two-month restriction on 75% of Brazil’s total poultry exports, he expects export volumes to fall by 13%
  • Adds that, assuming that 25% of this volume is redirected to the domestic market, this ban would “imply a 2% increase in local supply, with an estimated negative impact of 4% on domestic prices”
  • Notes that it could result in a negative impact of 7% on BRF’s Ebitda, and a 2% hit on JBS’s consolidated Ebitda
• “Although there may be some impact on exports from Brazil, we do not expect severe and lasting restrictions, given the country’s role in the global poultry trade,” he adds