September 19, 2018 / 2:53 PM / a month ago

UPDATE 1-Brazil's BRF sees rising competition for corn from ethanol makers

(Adds comments, details, background)

By Marcelo Teixeira

SAO PAULO, Sept 19 (Reuters) - Brazil’s largest poultry processor BRF SA has seen rising competition for corn supplies in the country’s center-west region coming from plants producing corn-based ethanol, Chief Executive Pedro Parente said on Wednesday.

The executive said the new situation posed a challenge for the company regarding securing raw material for feed at reasonable cost. Corn-based ethanol is a relatively new trend in Brazil, but has been developing quickly in center-west states such as Mato Grosso due to the ample supplies of the cereal.

“We have seen an increase in consumption of corn by ethanol makers in Mato Grosso and Goiás, they became a relevant corn user,” said Parente at a presentation in a seminar organized by broker and analyst INTL FCStone in Sao Paulo.

The BRF CEO estimated that ethanol makers were already using between 10 and 15 percent of the supplies in those states, where the meatpacker has processing plants and operates with associated chicken and pork growers.

Brazil is the world’s second-largest ethanol producer behind the United States, but traditionally produces the fuel from sugarcane. New investments in the center-west, however, are increasing the share of ethanol made from corn in total volumes.

BRF’s Chief Financial Officer Elcio Ito said the company has started to add DDGs (dried distiller grain), the byproduct from corn-based ethanol, which is rich in protein, as an alternative ingredient for feed.

He said DDGs compete with soymeal in cost in the areas where corn ethanol plants operate, so BRF buys the DDGs when they are cheaper than soymeal and depending on the type of feed they need to produce.

BRF is struggling to overcome a ban imposed by the European Union due to food quality issues. Parente said the company currently has high stocks of chicken breasts, the product it used to widely export to Europe, as a result of the ban.

The CEO said the firm is selling the breasts at some selected markets at lower prices, to reduce the stocks. (Reporting by Marcelo Teixeira Editing by Chizu Nomiyama and Bernadette Baum)

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