Bird flu: BRF, JBS at the highest risk due to potential export halt

Following the identification of bird flu cases in Rio de Janeiro, Espírito Santo, and Rio Grande do Sul, Minas Gerais reported its first case of the disease at the end of last week. The spread of avian flu across Brazilian territory is raising concerns for investors and those in the poultry industry.

According to Itaú BBA, the risks of a potential halt in Brazilian poultry exports have increased as the disease continues to spread. In such a scenario, BRF and JBS would face the most significant impact.

“While it is premature to determine whether chicken exports will be brought to a halt, recent developments indicate that the chance of this worst-case scenario is growing,” says the analysts’ team led by Gustavo Troyano. “If the disease reaches production farms, BRF and Seara’s operations would experience an excess supply in the domestic market, leading to a partial cessation of exports.”

They point out that while JBS, the owner of Seara, has 6% of its revenue exposed, 25% of BRF’s revenue depends on Brazilian chicken exports.

Mitigating the effects

The potential follow-on investment in BRF, with commitments from Marfrig (MRFG3) and SALIC totaling BRL 4.5 billion, could better position the company to weather the storm if it comes to fruition.

“If the company can navigate through the challenges with a stronger balance sheet and higher cash reserves, the potential downsides should be mitigated. Since the announcement, investor sentiment regarding BRF’s exposure to avian flu-related headwinds has already improved,” they explained.

As for JBS, the company’s global presence in multiple countries should help alleviate the level of impact, particularly due to its subsidiary, Pilgrim’s Pride.

Currently, Itaú BBA points out that avian flu cases are primarily concentrated in states with limited significance in the production and export of Brazilian poultry. In 2022, Rio de Janeiro and Espírito Santo accounted for only approximately 0.2% of total poultry sales abroad. Minas Gerais represented 7%, while Rio Grande do Sul, the most relevant state, accounted for 17%.

“However, in the event that new bird flu cases emerge in production farms, we believe that a potential ban on chicken exports would be limited to smaller geographical regions. The most significant impact would likely be restricted to the states of Paraná and Santa Catarina, which together constitute approximately 60% of total Brazilian exports, but have not reported any avian flu cases thus far, even in wild birds,” they concluded.

Source: Infomoney

To read the original news report, see: https://www.infomoney.com.br/mercados/gripe-aviaria-brf-brfs3-e-jbs-jbss3-seriam-as-mais-expostas-em-casos-de-possiveis-paralisacoes-na-exportacao-diz-bba/

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