Marfrig Global Foods S.A.

In Brazil, cattle availability remains high, although cattle prices peaked in late 2019 thanks to strong export volumes to China. We still expect Marfrig's export business to offset the weak demand in domestic market. The company's beef exports from South America have also been benefiting from the weak currencies and strong volumes mainly to Asia because of the ASF's impact. Also, the reopening of markets, including the U.S., Indonesia, and Thailand for the Brazilian beef highlight the favorable momentum. Nonetheless, we now expect the company to increase focus on its core business and develop new growth avenues, as seen in the recently created joint venture with Archer Daniels Midland Co. to increase production of plant-based meat. The stable outlook reflects

...COVID-19 poses threat to the sector, but we expect the impact to be limited. COVID-19 has caused temporary plant shutdowns in the U.S. and Brazil, along with disruptions in the foodservice demand because of global lockdowns. We expect that plant shutdowns to be temporary, and that there's significant political support to keep production open. Marfrig's operations in Brazil haven't suffered from the spread of COVID-19 so far, with confirmed cases at one of its plants. However, two of its National Beef (NB) plants in the U.S. were temporarily closed, which reduced capacity utilization while labor costs will be higher because of absenteeism. About 15%-20% of the company's U.S. and 10% of Brazilian revenues come from the foodservice segment, which sells higher-margin premium cuts that need to be redirected to the retail at lower prices. Nonetheless, we expect higher average prices on other cuts destined for retail and exports to China (mainly from South American operations) to offset lost sales....

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