U.S. Beef May Soon Benefit From China Demand, Marfrig Says

U.S. beef could benefit from Chinese protein shortages. ( Wyatt Bechtel )

(Bloomberg) -- As African swine fever leaves China with a formidable protein gap, Brazilian meat producers have been rewarded with a boom in shipments. Now, that demand burst could start spreading into the U.S.

That’s according to Eduardo Miron, the chief executive officer of Marfrig Global Foods SA, the world’s second-largest beef producer. He expects the Beijing-Washington trade deal signed last month will lead to rising American beef exports to China. That should also lower available supplies in the U.S. market, which is already tight, and raise domestic prices, he said.

It could mean more good news for Marfrig. The company just posted record earnings before some items and revenue in the fourth quarter, boosted by higher South America exports and a robust U.S. beef market. Miron expects to repeat strong results this year as China’s demand should continue benefiting margins -- not only in the Southern Hemisphere, but now also in the U.S., he said.

Shares of the beef giant rose as much as 3.6% in Sao Paulo on Thursday to 14.24 reais, the highest intraday price since August 2011, before trading little changed.

While Marfrig sells 85% of its U.S. production to local customers, who require better quality and pay higher prices, the company will see some secondary benefits of China’s increased demand for American beef. With other producers in the domestic market increasing sales to China, overall prices are likely to rise, favoring the whole industry, Miron said.

American beef supplies could also be in greater demand as exports drop from Australia, where extreme wildfires are hampering cattle production. That could also contribute to higher U.S. margins, which have benefited from higher demand and ample cattle supplies, he said.

Sao Paulo-based Marfrig is one of the largest beef producers in the U.S., where it operates through its unit National Beef.

More from the CEO and the company’s fourth-quarter results:

  • “2020 should be as strong as 2019 was both in North and South America.”
  • For South America, the higher number of plants allowed to export to China is seen boosting shipments to the Asian nation in 2020
    • China’s demand is expected to keep rising after the temporary disruptions caused by the coronavirus outbreak. Export prices, though, are likely to fall from the fourth-quarter peak as well as Brazilian cattle prices.
    • “There’s beef to be sold (to China) and there’s demand in the other side. This will continue. We are facing logistic issues that must be solved.”
  • China has started to make new bids for beef purchases this week after talks were almost halted amid the extended New Year holidays.
  • Marfrig hasn’t faced logistical problems in China so far, but sees delays as possible amid hurdles at ports related to ripples from the efforts to contain the coronavirus.
  • Net revenue in the fourth quarter rose to a record 14.2 billion reais ($3.25 billion), exceeding the average of four estimates in Bloomberg survey of 13.8 billion reais.
  • Adjusted earnings before interest, taxes, depreciation and amortization reached an all-time high of 1.6 billion reais in the quarter, in line with analysts estimates and rising 70% from a year earlier.
  • CEO sees upside for Marfrig shares despite the recent rally.
  • Company was lagging in the global meat rally and investors have realized “stock is cheap”, he said. The elimination of BNDES’ overhang risk has also contributed to the recent rally.
    • NOTE: Marfrig shares rose 28% in the five days through Wednesday in Sao Paulo

 

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