By Gabriel Araujo
SAO PAULO, Oct 20 (Reuters) - An outbreak of Newcastle disease in Brazil is unlikely to cause lasting damage to the country's poultry industry if authorities contain it quickly, analysts said, though uncertainty over trade restrictions, particularly from China, remains a key risk for exporters.
Brazil, the world's largest chicken meat exporter, confirmed a case of the disease at a commercial farm in the southern state of Santa Catarina on Monday, prompting containment measures and triggering concerns over poultry trade flows.
Mexico, Brazil's seventh-largest poultry buyer last year, quickly suspended imports, while meat lobby group ABPA said Brazil would impose a self-embargo on shipments to China pending a decision by Chinese authorities on whether restrictions would apply nationwide or only to the affected area.
Shares in major poultry processor MBRF fell more than 4% on Monday, while US-traded peer JBS slipped 1%.
Brazil last reported a Newcastle disease outbreak in July 2024 in Rio Grande do Sul state, which neighbors Santa Catarina.
Chicken exports fell by about 25%, or 100,000 metric tons, during the month affected by restrictions that year, analysts at JPMorgan estimated, but rebounded quickly as markets reopened, causing no material effect on MBRF'sand JBS' earnings.
China was the most consequential source of trade disruption as it kept a state-wide embargo in place until January 2026, they noted, but other key destinations such as Mexico, the European Union, Saudi Arabia and Japan either eased restrictions quickly or implemented a localized response.
"This time around, unless we see a widespread event happening (which is unusual for this disease), we think the impact could be even smaller as several countries have changed their restriction protocol to a radius," JPMorgan said.
Santander analysts also flagged China -- which currently accounts for roughly 10% of Brazilian chicken exports -- as the key uncertainty, adding that MBRF is more exposed than geographically diversified JBS to potential disruptions.
They estimated trade restrictions could affect about 15% of Brazil's chicken production under current export protocols.
Prolonged restrictions could force exporters to redirect shipments to alternative markets or the domestic market, potentially weighing on prices and margins, Santander said.
"All in all, we are monitoring the scope and duration of trade restrictions. Lack of visibility on the duration of Chinese suspension is the key risk," they added.
(Reporting by Gabriel Araujo; Editing by Oliver Griffin and Alistair Bell)