How the war in Ukraine affects companies with shares on the Brazilian stock exchange

The war in Ukraine is expected to raise costs for Brazilian food and beverage companies that rely on raw materials such as wheat and corn, the latter used as animal feed. Even the price of beers that contain these two ingredients could be affected if the crisis continues, according to reports by Itaú BBA that analyze publicly traded Brazilian companies with shares in B3.

In recent days, several analysts have pointed out that the biggest concerns at the moment are not the impacts on Brazilian exports — Russia represents only 0.6% of our sales abroad. The biggest problem would be the imports of products from those two countries and the effects of the conflict on the price of some commodities.

Russia and Ukraine account for around 30% of global wheat exports and nearly 20% of corn. Both products had a strong rise in recent days.

According to the bank’s analysts, a global imbalance in the supply of corn may pressure the margins of the BRF company, given the representativeness of the input in the company’s business – in the feeding of pigs and poultry.

“Although we see the possibility of BRF benefiting from a possible drop in chicken supply from Ukraine, we believe that corn cost inflation should overcome the improvement in the scenario for this protein, reinforcing a negative trend”, says the bank, which maintained a neutral recommendation (performance in line with the market average) for BRFS3 paper.

In the report released last week, analysts also cite the risk of margin compression for JBS, considering the chicken and pork operations in Brazil and the US, animals fed with corn.

On the other hand, the assessment is that, in beef producing units, the impact of grains should be irrelevant, unless the entire protein chain is unbalanced for a longer period. Itaú maintained its “buy” recommendation for JBSS3.

In relation to the other two big ones in the meat sector, analysts say they do not see direct impacts on Marfrig (except through its investment in BRF) and say that the two countries are not such relevant trading partners for Minerva. The “buy” recommendations for MRFG3 and BEEF3 were maintained.

Corn and wheat represent about 10% of Ambev’s cost structure, according to the bank’s estimate for the brewer — some use corn and wheat. The company, however, has a hedging policy of approximately 12 months against price changes.

“We estimate that the results of an increase in prices would only be seen in 2023 and if this high were to remain for a long period.” The bank recommendation is neutral for the ABEV3 paper.

The report also cites M. Dias Branco. In the first three quarters of 2021, wheat represented approximately 43% of the company’s entire cost structure. The assessment is that the company is no longer able to pass on inflation to consumers at the same speed and magnitude as before and that an increase in commodity prices could negatively impact margins.

“Despite this, we do not see a risk of shortages at this moment, because Brazil imports less than 3% (average from 2018 to 2021) of wheat from Russia and Ukraine.” The neutral recommendation for the MDIA3 action was maintained.

Although Camil is in the pasta sector, a wheat-dependent segment, through Santa Amália, this operation is not very representative within the group. Therefore, no major impacts are expected —neutral recommendation for CAML3.

In another report, the bank analyzed the major sectors represented in B3 that could be affected by the conflict.

The appreciation of oil and gas, whose prices should continue to rise, should benefit PetroRio and 3R shares. “The implications for Petrobras are not so direct, since there is a concern about the company’s ability to pass on this increase to fuel prices.”

Airlines, on the other hand, should be harmed, given that companies like Azul and Gol have a relevant part of their costs associated with fuel prices.

A negative impact is also expected for Natura &Co, given that Avon International has around 50% of its sales in the Eastern European region, a large portion coming from Russia.

Analysts also see positive effects for SLC Agrícola, a producer of cotton, corn and soybeans, and for CBA (Companhia Brasileira de Alumínio), as Russia is also a major producer in this market.