JBS Sees Higher Grain Prices, Cuts Other Costs to Offset

Brazil’s JBS SA, the world’s largest meatpacking company, said on Tuesday that rising prices for grain, the key raw material for feed, don’t show any hint of cooling off, forcing it to cut other costs.

Chief Operating Officer Gilberto Tomazoni said the recent rise in grain prices has pressured profit margins for some products. He spoke on a conference call with investors and analysts a day after the company posted better-than-expected earnings.

An intense drought in Argentina earlier this year and below-average rains currently in Brazil have boosted prices for soybeans and corn, elevating costs mainly for pork and poultry processors who use the grains as the main ingredients for feed.

“On grain costs, I do not see much cooling ahead,” Tomazoni said. The executive said prices might come down a little, between 7 percent and 10 percent, but not more than that.

A large part of Brazil’s main corn crop is currently in the growing stage, so it could still recover if gets enough rain.

Corn prices locally are trading at a premium compared to Chicago values, as high exports and strong demand from meat processors lead to expectations of a possible tight supply in the second half.

JBS reported that sales fell 5 percent in its Seara division, which produces and processes poultry and pork both for the local market and for export. The company had raised prices on those products to offset higher production costs.

Tomazoni said the company will not enter any price war to gain market share.

JBS shares were up 2.2 percent in Sao Paulo, while the broader exchange index Bovespa was down 0.3 percent.