Drop That Chicken! (BRFS Short)

  • Brazil’s economic and political climate are toxic for its companies.
  • BRF is closely tied to Brazil’s economy. Where Brazil goes, so does BRF.
  • BRF’s margins are being attacked on all sides which has in turn hurt its bottom line.
Brazil is a mess. With a toxic economic and political environment, it is not a good place to put your money. But that doesn’t mean you can’t profit from the those who do invest there.

Brazil is currently facing its worst financial crisis since the Great Depression. As seen in the graph below, GDP shrunk 4.5% in the 3rd quarter from a year earlier. This is the 6th consecutive quarterly contraction. It’s also the lowest number recorded since Brazil started using their new GDP system in 1996. 

André Perfeito, chief economist at Gradual Investimentos in São Paulo, had much to say about the contraction. He explained that the “[the latest GDP] report read like an obituary. There were no positive signals […] for the Brazilian economy in the next few quarters, and we still can’t say we’ve hit bottom.”

As a commodities based economy, the recent rout in prices has been a disaster for Brazil. Its economy is shrinking fast and has already lost over a million jobs this year. At the same time, inflation is running wild at over 10%. And despite the central bank’s best efforts, its currency, the Brazilian Real, continues to plummet. It has shed 33% of its value this year alone.

(Keep reading…)

 

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