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Brazilian macroeconomic trends and its effects over beef exports to China
Source:MIG | Author:Lygia | Published time: 2020-11-26 | 797 Views | Share:

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-Brazilians was told to stay home. As a result, small business closed to stop cash buffer. Some of them are firing people and others arestarting to go bankrupcy now. Government broadcasted a package of economic stimulus for the small and medium companies;

-After that, states mandatorily closed restaurants and other non essential businesses. Salaries were renegotiated, people was sent home on vacation and some of them fired (56% of Brazilian companies are small or medium sized);

-Basic interest rate dropped from 4.25% to 3.75% and streightened the Dollar. This practically puts to zero real interest rate inBrazil. There is the possibility that it will drop more 0.5% as a stimulus to liquidity. Will it be enough?

-Brazilian deputies approved Public Calamity Situation because of the COVID-19 spread: this measure drops the necessity to respect theGovernment limit to spend money. In the short run, it is good to retain the vírus dissemination and control the death rate, but in theother hand it extends the recovery time for the Brazilian economy;

-Because of that, the implicit risk for Brazilian economy is going up again;

-Hotels are experiencing a 90% cancellation rate. Airlines asked for Government help. No Money will be given, aparently, but some fiscal benefits will be conceived;

-Consumption changed from restaurants and cafeterias (schools, factories, etc) to the supermarekts.

 

 

 

Projections 2020/21

 

 Dollar R$ 4.50/4.70 until the end of the year (R$ 4.10 in 2021)

 

 Interest 3.25% (4.00 in 2021)

 

 GDP should drop 1.1% (before na increase of 1.8% was expected) (4.2% increase in 2021).

 

CONSEQUENCES

 

 

-There were some cancellations in orders from Europe and Middle East because of the oil prices and COVID-19 affecting the economy in thosecountries;

 

-Domestic consumption: migration from food service to peoples homes through supermarkets. In food service, theres variety to keeppeople coming to eat (beef, chicken, pork, fish). At home, the consumer has to make their own choices, and considering also theunemployment pressure, they should go for chicken and other cheapest proteins.

 

-Study points two adult deaths to every 100.000 people for every 1% increase over unemployment rate. This can lead to a weaker per capita consumption.

-Prople started stocking food at home at first, but not anymore as the perception of running out of goods disappeared;

 

-Because of the changing in the sales flow and substituition for cheapest protein fonts, the industry started a productive adjustment andparalized units;

  Minerva: 4 units - José Bonifácio - SP, Janaúba MG, Mirassol DOeste - MT e Paranatinga MT
  Marfrig: 1 unit - Tucumã PA
  JBS: 5 units - Nova Andradina - MS, Alta Floresta - MT and Juína - MT. Other two not yet informed.

  Small slaughterhouses (not China) are dropping production in half (jumping slaughtering days) and firing people; 


-Beef cattle prices dropped as a result of the productive adjustment, but now found stability as stocks in the induatry are low;

 

-Industry stocks are low, but there is uncertainty about payments: slaughterhouses want upfront payment and supermarkets are asking for 28 days payment. Trade is stucked. Consumption is low;

 

-The producer has capacity to stock the grassfed cattle at the moment, but this will change in the next few weeks as the dry season approaches;

 

-Slaughterhouses (small ones) with no access to China are suffering (cattle up, beef, down);

-Investments made in the last 2-3 years cannot be stopped: we will continue producing beef;

 

This will keep beef flowing to foreign markets in the next months and will not pressure prices to go up as before.