Brazilian Beef Export Volume and Prices Unexpectedly Drop to Multi-Year Lows this July

According to the latest Brazil Ministry of Industry, Foreign Trade, and Services data, Brazilian beef export volumes (excluding derived products) this July declined by 17% month-over-month (MoM) and 4% year-over-year (YoY) to 161 thousand metric tons (mt), their worst July in four years. This was the first YoY decline in three months after exports grew by double-digit rates in May and June.

Source: Tridge and Brazil Ministry of Industry, Foreign Trade, and Services

The export volume drop is more notable since export prices plunged to a 28-month low. The average export price for Brazilian beef fell by 6% MoM and by 28% YoY to USD 4.74/kg, their lowest level since Mar-21.

Source: Tridge and Brazil Ministry of Industry, Foreign Trade, and Services

The main driver of July's losses was the lower exported volume to China, which declined by 16% YoY (18 thousand mt). Lower exports to Egypt and Indonesia also contributed to this, down 60% YoY (3.4 thousand mt), and 100% YoY (3.3 thousand mt), respectively.

On the other hand, exports to Chile continued with notable growth, up 97% YoY (6.1 thousand mt). The same can be said about Russia, whose exports increased 396% YoY (6.9 thousand mt). Also experiencing considerable growth were exports to the United States (+78% YoY or 1.5 thousand mt) and Libya (+156% YoY or 1.5 thousand mt). However, export gains to these countries weren't enough to offset China's larger decline.

The export decline in July was unexpected. Brazil’s beef exports notably declined in annual terms from February through April of this year due to a temporary suspension of beef exports to China and other important markets from an isolated and atypical mad cow disease case. Nonetheless, Brazilian exports recovered in May and June, experiencing double-digit YoY growth and breaking the record for export volume during those months. This was expected to continue, as Brazil’s beef exports tend to reach their highest level of the year until August.

As exports to Egypt and Indonesia were already falling YoY in previous months, the big surprise was the decline in exports to China. Large drops in volume and prices point to a drop in Chinese demand. This is more notable considering that July’s decline in export prices to China was 32% YoY, in sharp contrast to an average 12% YoY decline in the rest of the top ten destinations. In fact, the destination with the second largest decline in percentage terms was Russia, which experienced a sharp increase in exported volume as mentioned earlier.

A weak Chinese Yuan coupled with a strong Brazilian real partially explains China’s drop in demand. In July, in USD terms, the Chinese yuan averaged its lowest level since Oct-22, down 6% from the previous year. In the meantime, the Brazil real strengthened 12% YoY to its highest level since Mar-22. The combined effect is that China’s yuan lost 16% of its value in terms of Brazilian real, and this rate is at its lowest since before the pandemic.

Source: Tridge and IMF

China’s domestic beef production is expected to grow considerably this 2023. In its latest Livestock and Poultry: World Markets and Trade report, the USDA expected the Chinese beef production to increase by 4% to 7.5 million mt this 2023. In late 2022 reports, expectations of higher Chinese domestic production had led to expectations of lower beef imports, but this was revised in later reports as China’s demand kept growing. Nonetheless, July’s slowdown might indicate a higher dependence on domestic beef.

It is still early to call if July’s slowdown was temporary or the beginning of a new downward trend. The Chinese economy in Q2-2023 grew less than previously expected, while consumer confidence has been falling. Part of Chinese demand growth during H1 corresponded to the lifting of pandemic restrictions in early 2023. This recent slowdown might be signaling that the post-pandemic boost is fading.