Named by the International Monetary Fund (IMF) as “the Great Confinement”, the recession caused by the current health crisis, experts say, will be the biggest since the Great Depression of 1929. Regarding the concept of recession, it is said that it is when there is a fall considerable increase in economic activity over months, reflecting GDP, wages, employment, industrial production and trade. In general, however, the definition is that an economy enters a recession when it accumulates two consecutive quarters of GDP decline.
Based on this, most predictions are being made about how the world will recover from the impact of the new coronavirus. However, it is worth highlighting that the uncertainty in the face of the crisis is great.
Projections from risk rating agency S&P Global Ratings include a drop in global GDP of 2.4% in 2020, followed by growth of 5.9% in 2021. Economists often turn to the alphabet to visually explain how they predict an economy's recovery which in this case should be similar to the letter “U”. In other words, it is one in which you enter and exit recession, but with low growth, making it difficult to exit the crisis. Recovery is difficult, but over time you recover and return to the same level as before.
And how was the slaughter waste market before the arrival of the Coronavirus? What has changed? What are the projections and expectations? We spoke with Caio Torres, manager of Aboissa's Animal Profat unit to understand how the sector has been reacting to this moment and what the “new normal” will be like for the market. Brazilian Grease Magazine – Before the pandemic, how was the animal by-product market behaving, both internally and externally? Caio Torres – The by-products market was heated, both internally and externally, during the 6 months before the start of the pandemic in Brazil (March 2020). For the animal meal market, this was a period of a lot of supply, but at the same time the domestic market had a fairly balanced demand, which is why there was a limited price range at R$ 0.15/kg. At times of ample supply, mainly in November and December, when prices tended to remain below this range, the external market was a good alternative to support prices, given the increase of 4.5% in animal meal exports. compared to the same period in 2018. From August 2019, due to the consumption of the biodiesel market, we saw a big jump in animal fat prices. The increase in the mandatory blend of biodiesel, which went from 10% to 11%, in August 2019, and from 11% to 12% in March 2020, made it possible for biofuel auctions, which took place in the last quarter/19 and first quarter/20, to present a level unprecedented in average prices that were above R$ 3.00 and demand for raw materials with an upward trend. Brazilian Grease Magazine – Which business areas were still in evidence? Caio Torres – The demand for animal fat was the highlight of the by-products scenario before the pandemic. The biodiesel market gained a lot of strength in the last half of 2019 and the shortage of soybean oil, which is the main raw material for this market, boosted the animal fats market. For this reason, we had a record increase in prices of 67% compared to the prices of animal fats when the mandatory mixture was 10%, and with the prices practiced in the auction contracts that took place in February.
Considering the historical price of animal fats in the six months preceding the pandemic and comparing with the same period of the previous year, we have an increase of 19% in fat prices. And this increase was also reflected in the foreign market, where there was an increase of 15% in the amount disbursed by tallow importers, compared to the same period of the previous year. Brazilian Grease Magazine – And what were the consequences of the pandemic for the sector? Caio Torres – The pandemic had a major impact on the animal by-products market, as it was directly responsible for the reduction in slaughters. China, for example, suspended import contracts for Brazilian meat at a time when they were well supplied, and this had a considerable impact on the production of slaughterhouses. And, in addition to China and other meat-importing countries, the domestic market also reduced consumption, which reduced the sector's prospects for reaction. There was a slaughterhouse that reduced its production by up to 50%. With more cautious production, by-products became scarce and, naturally, prices increased. However, the animal meal sector was the only market that maintained the same demand, causing its prices to skyrocket so that some specifications increased by more than 100%. In the months of March and April 2020, flour exports reduced by up to 20%, as suppliers were concentrated in the domestic market, which was more attractive even with the high dollar. In the case of fats, demand was not maintained, as the biodiesel segment showed a drop in consumption and this portion was too large for the soap sector to absorb, despite the issue of hygiene gaining great importance with COVlD-19. The second auction of the year, which took place in April (L72), had an average price lower than the August/19 auction, being the lowest price since when the mix was at 10%. In relation to the average price of the previous auction (L71), it was 9.5% lower. In terms of volume, the quantity negotiated was below the June/2019 auction – with 36% below the capacity offered. These results were not encouraging for the market, as the biodiesel industry was absorbing a very significant amount of animal fat. As the soap and hygiene markets were unable to absorb the portion that was destined for biodiesel, fat prices plummeted to 12% in relation to the price before the pandemic.
Brazilian Grease Magazine – In the midst of this pandemic scenario, how did Aboissa position itself and what measures and actions were adopted for this market?
And how was the slaughter waste market before the arrival of the Coronavirus? What has changed? What are the projections and expectations? We spoke with Caio Torres, manager of Aboissa's Animal Profat unit to understand how the sector has been reacting to this moment and what the “new normal” will be like for the market. Brazilian Grease Magazine – Before the pandemic, how was the animal by-product market behaving, both internally and externally? Caio Torres – The by-products market was heated, both internally and externally, during the 6 months before the start of the pandemic in Brazil (March 2020). For the animal meal market, this was a period of a lot of supply, but at the same time the domestic market had a fairly balanced demand, which is why there was a limited price range at R$ 0.15/kg. At times of ample supply, mainly in November and December, when prices tended to remain below this range, the external market was a good alternative to support prices, given the increase of 4.5% in animal meal exports. compared to the same period in 2018. From August 2019, due to the consumption of the biodiesel market, we saw a big jump in animal fat prices. The increase in the mandatory blend of biodiesel, which went from 10% to 11%, in August 2019, and from 11% to 12% in March 2020, made it possible for biofuel auctions, which took place in the last quarter/19 and first quarter/20, to present a level unprecedented in average prices that were above R$ 3.00 and demand for raw materials with an upward trend. Brazilian Grease Magazine – Which business areas were still in evidence? Caio Torres – The demand for animal fat was the highlight of the by-products scenario before the pandemic. The biodiesel market gained a lot of strength in the last half of 2019 and the shortage of soybean oil, which is the main raw material for this market, boosted the animal fats market. For this reason, we had a record increase in prices of 67% compared to the prices of animal fats when the mandatory mixture was 10%, and with the prices practiced in the auction contracts that took place in February.
Considering the historical price of animal fats in the six months preceding the pandemic and comparing with the same period of the previous year, we have an increase of 19% in fat prices. And this increase was also reflected in the foreign market, where there was an increase of 15% in the amount disbursed by tallow importers, compared to the same period of the previous year. Brazilian Grease Magazine – And what were the consequences of the pandemic for the sector? Caio Torres – The pandemic had a major impact on the animal by-products market, as it was directly responsible for the reduction in slaughters. China, for example, suspended import contracts for Brazilian meat at a time when they were well supplied, and this had a considerable impact on the production of slaughterhouses. And, in addition to China and other meat-importing countries, the domestic market also reduced consumption, which reduced the sector's prospects for reaction. There was a slaughterhouse that reduced its production by up to 50%. With more cautious production, by-products became scarce and, naturally, prices increased. However, the animal meal sector was the only market that maintained the same demand, causing its prices to skyrocket so that some specifications increased by more than 100%. In the months of March and April 2020, flour exports reduced by up to 20%, as suppliers were concentrated in the domestic market, which was more attractive even with the high dollar. In the case of fats, demand was not maintained, as the biodiesel segment showed a drop in consumption and this portion was too large for the soap sector to absorb, despite the issue of hygiene gaining great importance with COVlD-19. The second auction of the year, which took place in April (L72), had an average price lower than the August/19 auction, being the lowest price since when the mix was at 10%. In relation to the average price of the previous auction (L71), it was 9.5% lower. In terms of volume, the quantity negotiated was below the June/2019 auction – with 36% below the capacity offered. These results were not encouraging for the market, as the biodiesel industry was absorbing a very significant amount of animal fat. As the soap and hygiene markets were unable to absorb the portion that was destined for biodiesel, fat prices plummeted to 12% in relation to the price before the pandemic.
Brazilian Grease Magazine – In the midst of this pandemic scenario, how did Aboissa position itself and what measures and actions were adopted for this market?
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Caio Torres – A pandemic scenario requires even more commitment, discipline, teamwork, flexibility, ethics and efficiency – and these are our company’s values. At a time like this, our values become even more evident in each of the 62 members of our team.
In the by-products market, the lack of raw materials made the production of polishing plants difficult, and it was necessary to manage all of our customers' demand to ensure the least impact possible, both on the commercial and operational side. |
We managed to reinvent schedules to alternate loads with old and new prices so that everyone could go through this phase in the most favorable way possible, and we strengthened our relationship even further with the grease factories by seeking alternative raw materials and reactivating suppliers. In the foreign market, we stay in daily contact with customs, brokers and logistics operators to have up-to-date information and avoid extra costs and strain on our customers.
At the operational level, we were able to be successful in our management due to the communication that continues to be greatly strengthened with all those responsible involved. In the commercial sphere, we adopted the stance of carrying out contracts for smaller volumes to prevent price fluctuations from hampering operations.
Brazilian Grease Magazine – How has the experience been for the animal by-product market in conducting business during the pandemic? Caio Torres – The impact of the pandemic on our sector created adverse situations that demand solutions and new alternatives. The animal by-product market is very large and there will always be opportunities. That's why I believe that, despite everything, the experience is enriching, as the need to develop solutions, businesses, approve new markets, create alternatives and reduce costs are already part of Aboissa's mission. In addition to our constant follow-up, we are taking the opportunity to maintain very detailed communication with all our customers, allowing them to anticipate market changes. Our information includes sector news, market data and price indicators, information that we obtain because we are dedicated solely to this sector. Brazilian Grease Magazine· What is the outlook for post-pandemic? Caio Torres· The prospect of improving slaughter is fundamental for the availability of by-products. We believe that this could adjust the prices of animal meal, especially offal, feathers and pork. Beef flour is more present on the market and its price continues to adjust. The high dollar may enable the development of some opportunities in the foreign market. In animal fat, there was a reaction in pricing driven by the biodiesel sector and the outlook is for prices to rise. Historically, this product tends to increase in the second half of the year, influenced by the low supply of soybean oil, so we may have higher prices, surpassing the record set in the first quarter. The foreign market suggests that it may offer a slightly smaller volume this year, as slaughters remain weak in Argentina, Paraguay and Uruguay. Brazilian Grease Magazine· Will the 'new normal' interfere in any way with the way we conduct business? Caio Torres· The “new normal” should be more careful when conducting new business. Because although price is the decisive factor in negotiations, we believe that details such as follow-ups and good communication will have greater weight. And this can contribute to the formalization of the market, because at a time like this it is very important to feel safe and count on partners who will actually fulfill the contract. Brazilian Grease Magazine – What is the lesson learned from this new moment? Caio Torres – This moment makes it quite evident the importance of being able to count on good options business, and being supported by a lot of market information to be able to make more assertive decisions in any situation. Commercial strategies cannot be immutable and limited to two or three alternatives, this is work that must always be done. We are permanently prepared for the development of these opportunities and, with our experience of more than 30 years in the market, we have the confidence to be with the client to deal with the most different challenges proposed by this universe.
Source: Revista Graxaria Brasileira
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