February 7, 2023

The Indie Toaster

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China and Indonesia Implement JBS (JBSS3) to Export Slaughterhouses in Brazil: What Impact on Sector Shares?

The Minister of Agriculture, Carlos Favaro, announced the approval of eleven refrigeration plants for Indonesia and lifted the suspension of three Brazilian refrigeration plants by China. According to Favaro, meatpacking plants for China include the JBS beef unit (JPSS3) Goiás and two poultry companies. “The (international) positive mood for Brazil has returned”, Favaro announced this Wednesday, 18 to journalists. “Brazil has credibility again.”

At the same time, the minister announced that the country had received authorization from Egypt to export Brazilian cotton. According to Fávaro, cotton has long fibers and high quality. “It’s not a big market, but it’s a quality place. Once we got the authorization to export to Egypt, we got the quality seal for Brazilian cotton all over the world,” he said.

Fávaro pointed out that President Luiz Inácio Lula da Silva’s international trips, planned to Argentina, China and the United States, will also aim to boost the competitiveness of Brazilian industry.

The minister recalled that he will travel to Berlin, Germany on Thursday 19th, and will participate in the Green Agriculture Week there. According to him, the President’s appeal is to take the message that “Brazil will continue to play an important role in world food production.” “Production will be sustainable respecting the environment and forestry code,” he assured.

Itaú BBA points out that JPS has limited exposure to the Brazilian beef industry, with 5% of the company’s earnings before interest, taxes, depreciation and amortization (Ebitda) in 2021 coming from the Brazilian beef business.

Also, six of the 35 JBS factories in Brazil are still authorized to export to China during the said ban period. “Hence, we believe the company may have diverted exports from other plants to China after the ban in April 2022. At this stage, we do not see this as relevant news to move the stock,” he assessed.

In a cross-reading to Minerva (Beef 3), the lifting of the ban on JBS plants did not bring much change to increase beef supply in China.

“Therefore, we do not believe that lifting the ban alone will affect Minerva’s investment thesis. However, one could argue that today’s news means that China is still on the road to recognition
Starting with previously approved plants that have been temporarily suspended, plants to supply the region”, he estimates.

If this additional accreditation process works, the BBA anticipates three major implications for Minerva. The first is an optimistic one, in which China is increasing its beef suppliers, reinforcing the country’s constructive outlook on demand and indicating a positive reading for demand.

Assessing the bank, on the other hand, has two potential negative implications. First, depending on which companies are authorized to export to China, Minerva’s share of Brazilian exports to the Asian company will increase beef supply in the region.

Second, increased competition for livestock suitable for export to China could increase price inflation in certain regions.

“Note, however, that it is too early to become more concrete on this issue, as approvals at other plants are only guesses at this time”, assess the analysts.

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Bradesco PPI sees the ministry’s announcement as somewhat positive for the company as China is the world’s largest beef importer. “However, in our coverage, we note that JBS is a listed Brazilian beef player with limited exposure to beef exports to China (around 5% of revenue),” he assesses.

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Conab

Favaro also said yesterday that the government should define the new structure of the National Distribution Company (Conab) this Thursday. As shown Estado/BroadcastThe administration is evaluating the creation of an agricultural intelligence agency parallel to Conab along the lines of the United States Department of Agriculture (USDA) under shared management by the Ministry of Agriculture and Agricultural Development (MDA).

“Tomorrow (today, Thursday) we are going to finalize this from the MDA, with Minister Rui Costa and Minister Paulo Teixeira, at the request of President Lula. Tomorrow we are going to formalize the design,” the minister told reporters after meeting President Luiz Inácio Lula da Silva at Planaldo Palace.

Konab is one of the major points of contention between agriculture and the MDA. The Civil House, Agriculture is to be thought of with two directorates of the state-owned enterprise, but seeks control of portfolio delivery and agricultural intelligence areas.

(with Estadão content)