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After a Year of Embargoes & Rising Costs, Brazilian Meat Producers Set to Rebound

Published 01/03/2022, 05:48 PM

By Jessica Bahia Melo - If 2021 was a year of serial difficulties for companies in the Brazilian meat sector, 2022 appears more promising. The resumption of beef imports by China, beef and pork imports by Russia, and the continued high demand for these commodities globally are encouraging factors for the main players in the sector globally and in Brazil. The European chains’ boycott of Brazilian brands due to deforestation, however, will remain a negative factor if it persists.

The four publicly listed meat producers on the Bovespa had very distinct performances during 2021, as did the prices of meat. Live Cattle Futures showed a strong appreciation in 2021. A year ago, they were quoted at $112, while on Wednesday December 22nd they passed $135. A different situation was that of Lean Hogs Futures, which had a significant increase in the middle of the year, at $122, and have fallen to around $82.

With this in mind, while companies like Marfrig (SA:MRFG3) (OTC:MRRTY) and JBS (SA:JBSS3) (SA:JBSS3) - whose consumer market is mainly in the United States - saw a year of high margins that analysts view as unsustainable, Minerva (SA:BEEF3) (OTC:MRVSY) suffered with the restrictions in China, and BRF (SA:BRFS3) (NYSE:BRFS) from the drop in income and unemployment in Brazil, because the latter has a greater focus on the domestic market than the other meat producers mentioned.

These contrasts reflect in their stock performance for the year. Mafrig rose 52% and JBS rose 66%, while BRF ended the year up only 2.2% and Minerva finished up only 4.1%. (Performance based on Brazilian listings)

Improving Trade Outlook

The year ended with promising news on the trade front. In November, Russia announced zero import tariffs on beef and pork and import quotas for several countries, including Brazil. The expectation is that in the first quarter of 2022 the Russian government will carry out inspections to qualify new Brazilian plants for export.

In December, China lifted the embargo on Brazilian beef. The restrictions began after cases of mad cow disease occurred in the states of Minas Gerais and Mato Grosso in September. Brazilian beef exports registered consecutive drops in the following months given its largest buyer decided to suspend shipments. Hyberville Neto, market consultant at Scot Consultoria and columnist for Brasil, believes that the embargo being lifted is related to China's need for meat due to the Chinese New Year, celebrated in February.

The Global Outlook For the Meat Sector In 2022

In a report on the global outlook for the meat sector, Bank of America (BofA) pointed out that the companies were able to sustain margins due to strong demand in the United States and Mexico. For 2022, BofA does not expect commodity costs to drop significantly, bringing cost pressure and limiting margin expansion. The withdrawal of stimulus in the United States may also affect the market, but the expectation is that yields will remain above historical levels.

For the Brazilian cattle cycle, the bank expects faster turnover of livestock inventory, increasing availability and reducing costs. For chicken, lower grain prices tend to benefit the sector. Inflation should also be a boon - as consumers face higher costs, they tend to switch to chicken, which is cheaper than beef.

At a domestic level, the expectation is that the improved weather will benefit the corn and soybean crops, reducing cost pressure. Hyberville Neto believes that even if China resumes part of its pork production, there is still room to expand Brazilian shipments - and that goes for other proteins as well.

"Expectations for meat production next year are not strong in China. While they rebounded in pork production in the last two years, the expectation is it drops in 2022," he adds.

The expert agrees that the trend is for an increase in the supply of cattle in the country, with less retention of females in the herd. "We expect an increase in supply, but not in such an abundant way that it would bring down the market."

A Review of the Big Four Meat Producers


Marfrig, which operates mainly in the U.S. beef market with plants installed there, benefited from the injection of U.S. government funds in the economy, achieving margins above their historical average - a situation that analysts expect to normalize.

In the third quarter, it recorded adjusted EBITDA of R$4.7 billion, up 115.6% year-on-year, and net income of R$1.7 billion, up 148.7%.

XP has a buy recommendation for the stock, with a target price of R$34.80. Leonardo Alencar, agro, beverage and food analyst at XP (NASDAQ:XP) Investimentos, believes that the supply and demand set up in the U.S. favors the company.

Itaú BBA classifies Marfrig as Outperform, with a target price of R$26. Gustavo Troyano, food and beverage analyst at Itaú BBA, agrees that the year was atypically positive and expects above-average results next year as well, but with lower margins. "An average margin for the sector is around 4% to 7%, and this year there are companies with margins above 20%, which is very strong," he explains. The expectation, however, is that they will still be in the double digits.


More diversified in proteins and in the market of operation, the company recorded adjusted EBITDA of R$13.9 billion in 3Q2021 (+74.2% year-on-year). The net income of R$7.6 billion represents a growth of 142.1% in comparison with the same quarter last year. It also has great exposure to the United States, but exports to Europe and Australia, among other countries. It works with beef, pork, and now is even getting into fish. "This diversification offers more security for the company. The U.S. was expected to have a stronger recovery, but now with inflation weighing more heavily there, it is already starting to become more uncertain, which could make shares less attractive," says Fabiano Vaz, analyst at Nord Research.

However, JBS is among BofA's top picks in the meat sector, as it believes that even with lower margins in the North American market, new acquisitions should boost the next year’s results. The target price is R$70.

XP has a buy recommendation for the stock, with a price target of R$51.80.

Itau BBA rates JBS as Outperform, with a target price of R$47. The up cycle in the American beef market and the company's diversification are factors that benefit the thesis.


Another diversified producer, BRF is one of the largest global food companies, owner of brands such as Sadia, Perdigão, and Qualy. The company is more focused on processing and is more exposed to the Brazilian economy, although it also exports to several countries, including in the Middle East. The company has been affected by the high prices of grain, necessary for the production of poultry and pork, squeezing their margins. BRF recorded a net loss of R$271 million in the third quarter of 2021, against a net income of R$219 million in 3Q20. However, revenue grew 24.6% year over year, reaching R$12.3 million. Itaú BBA classifies BRF as Market Perform, with a target price of R$24.

XP has a neutral recommendation for the stock, with a target price of R$30.40. Leonardo Alencar points out that even with the rise in meat prices, the company was unable to regain margins throughout the year.
"It exported more to Asia, but didn't manage to arbitrage this very well. It was very focused on the domestic market, which did not perform well and, with the pressure of production costs, had a weaker year," he points out. However, the cost pressure should decrease in 2022, according to the analyst.

There is also intrigue regarding Marfrig and BRF. In December, BRF announced a planned secondary offering of 325 million new shares. The estimate is that BRF will raise approximately R$6.6 billion with the operation, which would allow it to expand its activities and make strategic investments, in addition to improving the debt structure, lowering total cost and reducing leverage. The measure will be voted on at the General Shareholders' Meeting on January 17.

Brazilian analysts see the operation as an opportunity for Marfrig to take control of BRF. Currently, Marfrig holds 33.2% of BRF shares and, according to BRF's bylaws, the shareholder that achieves control of 33.3% of the shares will have to launch a public offer to buy all the remaining shares at a 40% premium over the average share price of the previous 30 or 120 days, whichever is higher. This could correspond to a price 65% above BRF's market value.

However, in the event of a capital increase, the rule in the bylaws limiting BRF's shareholder control would no longer be valid. Despite having an aggressive history of acquisitions, analysts have no clear view of how Marfrig's advance on BRF will play out. That is a story for us to watch in 2022.


Minerva is one of South America's leaders in the production and sale of fresh meat and meat byproducts, but it also exports live cattle. In the third quarter of this year, the company reported a year-on-year growth of 24% in Net Income, reaching R$72.4 million. EBITDA in 3Q21 was a record, reaching R$648.1 million, an increase of 17% compared to 3Q20.

Itaú BBA classifies Minerva as Outperform, with a target price of R$17. According to the Itaú analyst, the company is the biggest beneficiary of the Chinese government's lifting of the embargo, since it is the company with the largest market share in that market.

Nord Research has a buy recommendation for the stock, but does not have a price target. "Marfrig is a great company and has super-interesting exposure in the United States, but it is a more competitive market there, with higher costs. Minerva has the advantage of exposure to China, a new market that is still growing. The middle class in recent years has increased income and people are improving their diet. Minerva is taking advantage of this and it is still a huge market," says Fabiano Vaz.

Read also: 2022 Outlook: How Will India's Nifty Perform Amid Global Uncertainties?

See our full 2022 Market Outlook Series here.

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