Ratings outlooks for JBS, Brasil Foods, Marfrig revised to negative

Fitch Ratings review prompted by high corn prices due to US drought

Fitch Ratings has revised the ratings outlooks for JBS S.A., Brasil Foods S.A. and Marfrig Alimentos S.A. from stable to negative due to the increases in international corn and soybean prices resulting from the ongoing U.S. drought, according to reports.

Other factors in conjunction with feed prices caused the ratings drop, said Fitch in its report. “The timing of the drought is an issue for JBS and Marfrig, as their ratings are weak in their respective categories and as they need to make progress in deleveraging to help maintain their credit quality,” said the company. ”For [Brasil Foods], the increase in corn price comes at a very inopportune time, while the company incurs temporary costs increases related to the asset transfers and the brand suspensions in relation to the Cade judgment of 2011.”

Grain prices are expected to remain at an elevated level for the rest of 2012 and well into 2013, said Fitch, and the extent of the grain price effect on operational performance depends on the protein mix of the respective company. “Poultry and live hog prices are directly affected by grain prices, as grains represent significant percentage of the cost of raising a live animal,” said the company. ”The impact will be more immediate in poultry, while in the short run, life hog prices may decline as the producers slaughter animals early to avoid higher feed cost.”