In this publication, we suggest some investment ideas in the LatAm protein sector, mainly related to Brazilian companies, although we are also including the Mexican companies Sigma Alimentos and Alfa. Over the last decade, the performance of Brazilian protein exports (BZVCBF Index) is partially explained by lower beef supplies into the US and rising demand from China, among other factors. It is also worth noting that during President Trump’s first term, Brazil strengthened its trade ties with Asia, and agricultural exports now account for c.30% of its major companies’ revenues, according to Brazil’s Ministry of Agriculture (MAPA). Domestic beef supplies in the United States have reached their lowest levels in seven decades due to a sharp decline in cattle herds, which has increased the demand for imports, as noted by the USDA. South American companies have capitalised on this opportunity by significantly boosting their export volumes. Brazilian beef exports to the US rose by 15% YoY in 2024, according to the Brazilian Ministry of Foreign Trade (BREXBD US index). Protein prices in 2024 also rose versus 2023.
President Trump has threatened this year to impose 100% tariffs on BRICS nations if they take steps to undermine the USD. We believe that if this happens, it could negatively impact Brazilian producers like Marfrig Global Foods (MRFG: Ba2/BB+/BB+), where North America accounts for almost 40% of its annual revenue. Globally, the cattle cycle is expected to limit beef supplies in Brazil and the US, the world’s largest exporters. Meanwhile, the pork market is struggling with ongoing trade disputes, and shifting demand toward chicken as consumers respond to rising red meat prices, according to the USDA Foreign Agricultural Service (FAS). This trend benefits Brazilian companies such as Minerva Foods (BEEF: Ba3/BB/BB) and BRF (Ba2/BB/BB+), which are well-positioned to capture growing demand in the poultry sector.
For HY investors, we maintain our tactical ideas on bonds such as BEEF 28s, 31s and 33s, MRFG 31s and BRF 30, as their durations align closely with the sector average. Spreads tightened in 2H24, reflecting the resilience of key credit metrics and robust EBITDA growth in recent quarters. These positive fundamentals could help mitigate the impact of international trade battles and support mid-term performance, even amid geopolitical uncertainties, in our view. In the case of Sigma (Baa3/BBB-/BBB) in Mexico, we believe the spread tightening is driven by Alfa's reorganisation that left Sigma as Alfa's remaining business unit, and in this sense, we see ALFA (Baa3/BBB-/BBB-) debt as a technical subordinated bond to Sigma senior debt. In the IG area, we would suggest going long SIGMA 28s and ALFA 44s, bonds that trade similarly to JBS bonds, although Sigma has better credit fundamentals and is also better diversified geographically.