April 29, 2016 / 3:12 PM / 2 years ago

UPDATE 1-Brazil's BRF plans to raise prices to counter high corn costs

(Adds plan to raise prices, quotes, details)

SAO PAULO, April 29 (Reuters) - Brazilian food processor BRF SA plans to increase prices by about 7 percent in May to help it counter rising costs and a generally challenging market that is expected to continue through midyear, Chief Executive Officer Pedro Faria said on Friday.

Faria told analysts on a conference call that the company’s 10 percent price increase at the beginning of the year was not enough to offset cost pressures from the higher local price of corn, the main component of poultry feed.

BRF, also the world’s largest chicken exporter, reported a first-quarter profit of 39 million reais ($11.2 million) on Thursday, down 91 percent from a year earlier.

Corn costs were about 60 percent higher than a year earlier because of a shortage of the grain, executives said.

Chairman Abilio Diniz said excess poultry production in Brazil, combined with the rising costs and unfavorable foreign exchange rates that hurt its exports, resulted in one of the company’s most challenging quarters ever.

BRF also lost about 50 million reais on corn hedging in Chicago as local and international prices diverged.

Despite the challenges, Faria said the company still expects investments of 2 billion reais ($571 million) in 2016. While there are concerns that a drought may affect a second annual corn crop that should come to market in May or June, BRF is counting on local prices of the grain to fall.

“There could be a second corn crop a little better or a little worse, but the prices will fall,” Faria said.

BRF has imported corn from Argentina and Paraguay but told Reuters earlier in the week that it did not plan to take advantage of a new quote to buy tariff-free corn from outside the regional Mercosur trade bloc.

BRF shares fell nearly 3 percent shortly after opening in Sao Paulo but then recovered to gain 2 percent.

$1 = 3.5 reais Reporting by Caroline Stauffer; Editing by Lisa Von Ahn

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