The potential merger of two major Brazilian food companies, BRF and Marfrig Global Foods, may have only a marginal impact on corn and soymeal prices amid limited synergies between the two giants.
Brazilian food processing giant BRF, which controls 49.9pc of the frozen food market share in the country, is a heavy consumer of grains to feed both poultry and pork. Marfrig, the second-largest beef processor in Brazil, uses mostly grass-fed cattle and has limited demand for corn and soymeal.
On 30 May BRF and Marfrig announced they had signed a memorandum of understanding for a potential merger, with a period of 90 to 120 days to evaluate economic benefits and corporate structure.
The combined company would have nearly R80bn ($21bn) in revenues, BTG Pactual analysts Thiago Duarte and Henrique Brustolin said in a note to clients.
The potential merger would result in "complement portfolios" and would not give the combined company increased bargaining power in soymeal and corn deals with producers, Alcides Torres, director at Brazilian cattle and grains consultancy Scot Consultoria, said.
BRF has already established the supply chain for its poultry producers and the merger would not affect anything for cattle, Torres said. According to him, confined cattle — which are fed grains — represent only 8-10pc of the total herd in Brazil, and cattle are typically only confined for three months out of the year.
"Nothing will change within the next five years, at least" for grains producers, he said.
Financial market analysts that cover BRF and Marfrig, which both trade on Brazil's B3 stock exchange, also expect limited effects from a merger.
The grain price impact from such a merger would be "slight as Marfrig is more focused on beef, while BRF operates mainly poultry and pork," said Pedro Galdi, an analyst at the Brazil unit of investment firm Mirae Asset. A merger would not significantly change demand pressure on the grains market, he said.
Jose Luiz Torres, partner and analyst at Brazilian asset management Apex Capital, expects no impact from the deal on the raw material chain. The deal's main synergies "would be tributary, logistics, and storage," he said.
The Brazilian cattle sector consumed less than 10mn tonnes of feed in 2018, data from the Brazilian animal feed association Sindiracoes show. Poultry producers, meanwhile, consumed almost 32mn t, while pork producers consumed 17mn t.
Brazil is a top producer and exporter of poultry and beef.
