China and Indonesia enable slaughterhouses in Brazil including JBS JBSS3

China and Indonesia enable slaughterhouses in Brazil including JBS (JBSS3) to export: what impact on sector shares?

Agriculture Minister Carlos Fávaro announced the approval of 11 refrigeration plants for Indonesia and the lifting of China’s suspension of three Brazilian refrigeration plants. According to Fávaro, the slaughterhouses for China include a JBS beef unit (JBSS3) in Goiás and two poultry companies. “The (international) positive mood for Brazil has returned,” Fávaro explained to journalists this Wednesday, 18th. “Brazil has regained credibility.”

At the same time, the minister announced that the country had received permission from Egypt to export Brazilian cotton. According to Fávaro, the cotton is longfiber and of the highest quality. “It’s not a very big market, but it’s a quality niche. With the approval to export to Egypt, we got the seal of quality for Brazilian cotton for the whole 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 improve the skills of Brazilian industry.

The minister also recalled that this Thursday 19th he would travel to Berlin, Germany, where he would take part in the Green Agricultural Week. According to him, the President’s request is that he convey the message “that Brazil will continue to be a major player in world food production”. “The production will be sustainable and respect the environment and the forest law,” he guaranteed.

Noting that JBS has limited involvement in the Brazilian beef industry, Itaú BBA notes that in 2021, 5% of the company’s earnings before interest, taxes, depreciation and amortization (Ebitda) came from the Brazilian beef business.

In addition, six of the 35 JBS factories in Brazil were still authorized to export to China during the said ban period. “We therefore believe that the company may have diverted exports from other plants to China after the April 2022 ban. At this point in time, we don’t see the news as relevant to move the stocks,” he assesses.

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In a crosscomparison with Minerva (BEEF3), the lifting of the ban on JBS plants does not bring as many changes in terms of increased beef supply in China.

“As such, we do not believe that the lifting of the ban alone will affect Minerva’s investment thesis. However, one could argue that today’s news could indicate that China is on course to approve more
Power plants supplying the region, starting with those previously authorized that have been temporarily shut down,” he estimates.

If this additional permitting process goes through, BBA anticipates three main impacts for Minerva. The first is optimistic, in which China is increasing its beef suppliers, reinforcing the country’s constructive view on demand and implying a positive reading for demand.

On the other hand, the bank estimates that there are two potential negative impacts. The first is that, depending on which companies are authorized to export to China, the region’s supply of beef may end up increasing without Minerva getting a share of Brazil’s exports to the Asian giant.

The second is increased competition for cattle suitable for export to China, which could increase cost inflation in certain regions.

“Note, however, that it is too early to comment further on this issue as approvals at other plants are currently guesswork,” the analysts wrote.

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Bradesco BBI also sees the ministry’s announcement as marginally positive for the company given that China is the world’s largest beef importer. “However, from our reporting, we find that JBS is the Brazilian beef listed player with the least exposure to beef exports to China (around 5% of revenue),” he estimates.

conab

Fávaro also stated yesterday that the government should define the new structure of the National Supply Company (Conab) this Thursday. As Estão/Broadcast revealed, management is evaluating the creation of an agricultural intelligence agency alongside Conab along the lines of the US Department of Agriculture (USDA) under joint Agriculture and Department of Agricultural Development (MDA) leadership.

“Tomorrow (today, Thursday) we will conclude this with Minister Rui Costa and with Minister Paulo Teixeira of the MDA, at the request of President Lula. Tomorrow we will formalize the format,” the minister said in an interview with the press after meeting President Luiz Inácio Lula da Silva at the Planalto Palace.

Conab was one of the main points of contention between agriculture and the MDA. The civil house is articulated in such a way that agriculture is considered with two directorates of the state enterprise, but the portfolio seeks control of the areas of supply and agricultural intelligence.

(with Estadão content)

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