MercoPress. South Atlantic News Agency

Weaker Real expected to bolster Brazil’s meat sector exports

Beef exports dropped 21% in the second quarter over a year ago

A weaker Brazilian Real should give companies in Brazil's meat sector more flexibility to increase export volumes and could also provide a short-term boost to margins.

“We believe that throughout September the Real depreciation has turned export players' attention toward international markets, as it has made the business much more profitable when compared to past months,” Credit Suisse said Tuesday in a report.

Brazil's Real has slid in recent weeks to around 1.89 to the dollar from 1.59 at the end of August, going from one of the world's most coveted emerging-market currencies to among the most heavily sold. Foreigners who had been cashing in on Brazil's sky-high interest rates earlier this year dramatically unwound long positions in the Real during September, as fears of a possible Greek default or US recession shook financial markets.

Though the Real is no longer flirting with record levels against the dollar, the government and most companies continue to characterize the currency as over-valued compared with the currencies of many of the country's main trading partners.

Credit Suisse said the change could be enough to give companies such as BRF-Brasil Foods SA, Marfrig SA or JBS SA “some room to maneuver,” potentially cutting prices to raise export volumes, particularly in the case of poultry. Exports account for about 40% of total sales for Brasil Foods and Marfrig, while JBS gets more than 80% of its revenues from foreign subsidiaries and exports from Brazil.

HSBC analysts said in a September report that a strong Real had been one of the main reasons that Brazilian beef exports disappointed in the first half of 2011, falling 11% year-on-year in the first quarter and 21% in the second quarter. The better exchange rate should bring some “relief” to exporters.

UBS, on the other hand, highlighted last week the risk that a weaker Real poses to companies with heavy dollar-denominated debt, pointing its finger at Marfrig and JBS.

”Currency moves could lead to negative pre-tax profits in (the third quarter), UBS said. But the firm added that ”food producers' top-line results could benefit from a weaker Real, assuming that global demand is not affected and prices do not decline in dollars”