Goldman Sachs Starts Coverage Of 4 Brazilian Food Companies

Goldman Sachs Group Inc. (GS) started coverage on four Brazilian food companies on the companies' increasing global importance, it said Tuesday in a research report for its clients.

"While China sets the global demand pace for food, control of much supply is now in Brazil. As in many other agricultural products, Brazil is also moving from price taker to global price setter. Despite its growing relevance, Brazil's sector stocks have been overlooked, and not all analysis has kept up with their new importance," Goldman Sachs said in the report.

Goldman Sachs started the coverage of Brazil's JBS S.A (JBSS3.BR), the world's largest beef producer, and meat packer BRF-Brasil Foods SA (BRFS3.BR, BRFS), both with a neutral recommendation.

"We are neutral on Brasil Foods until synergies start flowing. For JBS, we would wait for more visibility on its intended public offerings. Both stocks could look good in 2011, but we see risk of bad news before then," it said.

Brasil Foods was created last year through a merger of the country's two largest meat packers, Perdigao SA and Sadia SA.

Earlier this month, JBS announced plans to hold a primary and secondary offer of shares on the Sao Paulo Stock Exchange, or BMFBovespa.

"Despite an attractive long-run scenario, we are nervous in the near term as; Supply of live cattle is tight and competition between meat packers for supply should pressure beef margins; Grain price inflation will likely hurt pork and poultry profitability; Exports for poultry and pork remain weak, and; Companies have many recent acquisitions to digest," Goldman Sachs said.

Goldman Sachs initiated the coverage for shares of local meatpacker Minerva SA (BEEF3.BR) with a buy recommendation, while it initiated coverage of shares of Marfrig SA (MRFG3.BR) with a sell rating.

"We find Marfrig's 2010 guidance stretched, with risk to first-half results. The most serious challenges come from the integration of its latest acquisition, Seara, in our view. Minerva, at the other extreme, seems exempt from most headwinds, selling only beef and with capacity well-matched to supply," it said.

-By Rogerio Jelmayer, Dow Jones Newswires; 5511-2847-4521; rogerio.jelmayer@dowjones.com

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