Agreement that interrupts exports in cases of mad cow is flawed and deregulates the market, says specialist – 02/23/2023 – Vaivém

The suspension of beef exports to China, starting this Thursday (23), due to a case of mad cow in Pará, dropped the arroba of fat cattle to R$ 267.85 in the state of São Paulo, a drop of 11%, according to Cepea (Center for Advanced Studies in Applied Economics). It is the lowest level since November 2021, when the country also had sales to Asians interrupted.

The embargo, announced on Wednesday (22), is part of a health protocol between the two countries when there is confirmation of the disease Bovine Spongiform Encephalopathy (BSE) in Brazil. The government awaits the result of the countertest, in Canada, which can determine whether it is an atypical case – when the disease develops during the degenerative process of the animal and is not transmissible.

Lygia Pimentel, veterinarian, economist and partner at Agrifatto, says that these sudden fluctuations in prices and exports could be avoided. There is a flaw in the agreement between Brazil and China.

There shouldn’t be this automatic interruption of exports. In a herd of 200 million head, there will always be bulls and cows that are advanced in age and subject to this genetic degeneration.

It happened in 2010, in 2014, in 2019, in 2021 and it happened again now. There is a weakness in the agreement that should be reviewed. She cites the current case. The animal was nine years old, did not feed on feed, but on pasture, and did not cause transmission of the disease to the rest of the property. Everything indicates that it is an atypical case of the disease.

The biggest uncertainty in the sector is due to the time that China will take to return to the market. In 2019, it was 13 days. In 2021, it was from early September to mid-December.

Brazil is quick to communicate cases to China about what happened, but China does not have a deadline for evaluating and returning purchases, says Alcides Torres, market analyst at Scot Consultoria.

The 2021 lockdown scenario, however, was another. Prices were high and, with strong demand, China was interested in cooling the protein’s trading values.

In September 2021, when the embargo began, a ton of meat exported by Brazil was at US$ 5,790. In December, resumption of Chinese purchases, the ton had retreated to US$ 4,824.

The delay for the reopening of Chinese purchases should not be so long in this new interruption of exports, in the market’s assessment.

For Pimentel, prices are more accessible; there is growth in China, although at a slower pace; there was an import record in 2022; and the Chinese appetite continues.

The very manifestation of the Chinese ambassador, Zhu Qingqiao, about the importance of Brazil for the demand for beef in China was interpreted as a sign of the Chinese need for the Brazilian product. The ambassador met with the Minister of Agriculture, Carlos Fávaro, this Thursday.

For Pimentel, these interruptions in exports have a dramatic effect on small producers. Slaughterhouses reduce purchases, and arroba prices fall.

Thiago Bernardino de Carvalho, researcher at Cepea, says that the interruption of exports to China is a cause for concern. It shows why. From February 2022 to January 2023, the Chinese imported a monthly average of 107 thousand tons of beef.

A number at this level can indicate problems for both sides. Brazil would have to look for other markets to reduce the effects of this interruption, mainly because it is not possible to bet much on internal demand.

On the Chinese side, the Brazilian product is important to cover domestic demand. Other producers, like the US, have a smaller supply of the protein. Also, prices are high, like in Australia.

Without Brazilian meat, China would have to live with higher inflation, mainly due to the recovery in prices of other proteins.

The improvement in Chinese demand, with the opening of the market and the end of the restrictions of the Covid-zero policy, increase domestic sales and help to boost the market in the Asian country, says the Cepea researcher.

The consequences of the interruption of exports to China in Brazil will depend on how long the Chinese will take to return. In wholesale, there may be a drop in prices, as occurred in 2021, but it will depend on current stocks.

In the field, this year’s scenario is different from that of 2021, when the pastures were dry and forced a faster sale of cattle. This year, the blockade occurs in a period of pastures in better conditions that allow the rancher to keep more cattle on the farm.

Carvalho warns, however, that cattle maintenance costs are higher; it will depend on the sales schedule already assumed by the rancher; and the need to free pasture for other animals.

Alcides Torres, market analyst at Scot Consultoria, says that it is a bucket of cold water on the market. The arroba of fat cattle was recovering in the field from the second half of January, but prices will be affected by this interruption of exports.

He believes, however, that the return of the Chinese to purchases will be faster this time. If they delay, they will catch rising prices in the off-season. Also, they are low on stocks due to the recent holidays.

Research by Scot already points to a 5% drop in wholesale beef prices this week, compared to the previous one. The retreat, however, is more a reflection of the consumer’s lack of money, due to spending on Carnival, than the case of the mad cow, says the analyst.