March 8, 2010

Argentina's 2010 beef production seen to hold steady

The attache in Argentina is maintaining the current USDA estimate for the country's beef production in 2010 at 2.8 million tonnes, while increasing estimated production for 2009 by 200,000 tonnes to 3.4 million tonnes.

Estimates contained in attache reports are not official USDA data. The text of the attache report follows.

After several years of high supplies, Argentina's cattle/beef market is now experiencing the results of a herd and production reduction caused by a severe drought suffered in 2008-2009 combined with low livestock returns. Cattle slaughter, beef output, domestic consumption and exports are all expected to decline substantially in 2010.

The two-year long drought forced producers to market in 2009 more cattle than planned, and at the same time, it reduced significantly the calf crop. The combination of these two events resulted in a strong herd reduction, which is expected to negatively impact on cattle available for slaughter in 2010-2011. Cattle prices have increased 70-80% compared to a year ago.

Sudden smaller cattle supplies, fewer government controls on the local beef market, abundant pasture production (rains have been plentiful since November 2009), firm domestic beef demand, and strong expectations of price improvements made cattle and beef prices increase considerably in the past few months. Most local analysts are, however, expecting some downward adjustment in the next few weeks as consumers adjust to the higher prices.

Contacts indicate that the government has been taking steps to moderate the recent beef price increase. It has reportedly slowed down beef export authorisations, and continues to request export meat packers to send inexpensive beef to supermarkets on the weekends. The government has stated its expectation that in March cattle supplies will start to increase and thus prices will tend to go down.

Government officials indicate that it will continue to support production in feedlots in order to encourage beef production in the short term. Private sources estimate that the government spends over US$250 million a year to support feedlots. About six million head of cattle came out of feedlots in 2009. Feedlots in the current year will operate under an environment where the relation corn/beef price is excellent, but feeder cattle prices have doubled in the past few months and the number of calves will be limited because of a reduced calf crop and abundant pastures available. Many cattle producers will likely take advantage of the favourable price relation and feed their own cattle.

Domestic beef consumption is expected to drop significantly in 2010 because of reduced beef supplies. While in 2009, due to the drought and cattle liquidation, per capita consumption reached almost 69 kilos; in 2010, it is expected to be closer to 60 kilos. Some consultants estimate that consumption could be even lower. Poultry and pork are expected to gain an additional portion of the meat market demand.

Most contacts speculate that the government will continue to limit exports, while allowing exports of the Hilton Quota (high value cuts), thermoprocessed beef from old cows, some bilateral agreements (most likely Venezuela), and a few other markets. Utilisation of the Hilton Quota for 2009-2010 is slower than normal because of delays by the government in announcing its distribution. Some exporters have expressed doubt that it will be fulfilled this year. Some large export plants have shut down temporarily, as they are unable to source the number of cattle they need at prices that they can pay. Large export companies are increasingly interested in buying cattle and sending it to feedlots, to reduce the dependence of an erratic local market.