Bad Bet on Inflation Drains Protein Profits for Brazil’s BRF

(Bloomberg) -- The world’s second-largest poultry supplier is selling more than ever as pandemic-hit consumers seek cheaper protein options. But inflation is gobbling up all its profit.

BRF SA is suffering from surging prices in Brazil -- and not just pricier corn to feed its birds. In the second quarter, the Sao Paulo-based firm’s financial expenses skyrocketed, partly due to debt linked to Brazil’s inflation index, which rose to 4.61% from 0.99% a year earlier.

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By tying a chunk of its debt to Brazilian inflation, BRF is paying a heavy price for a consumer-price reading that’s tracking well above target.

The country’s severe drought is pushing up crop prices, while a global recovery is keeping other raw materials expensive. A shaky domestic economic rebound is limiting the company’s ability to pass on those costs to consumers.

Adding insult to injury, BRF was also hit with a mark-to-market loss on a put option related to improvements in its operations in Turkey. Those bottom-line woes contrast with record-high sales that exceeded analysts’ expectations.

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