March 10, 2008

 

Argentina eyes EU beef market after Brazil's exit

 

 

Argentina's cattle farmers are eyeing the EU market as safety considerations forced Brazil out of the market, according to a USDA attache report posted on the Foreign Agricultural Services Web site.

 

Export prices in Argentina jumped significantly after the announcement of the EU shutting down beef imports from Brazil.

 

Hilton quota prices increased over US$3,000 per tonne, reaching US$17-18,000 per tonne, a record.

 

The Hilton Quota is regulated by the European Commission which allows a certain quantity of high-quality beef to be imported into the EU from countries like Argentina, Brazil, the US and others at a special duty.

 

Argentine traders now foresee that larger volumes will be directed to the EU, where prices are very attractive. However, there are many local export plants which are not eligible to export to that market, and will continue to ship to other markets such as the Russian Federation, Chile, and Venezuela.

 

Meanwhile, Argentine beef exports continue to be estimated at 535,000 tonnes for 2008.

 

The Argentine government (GOA) continues to monitor and control beef exports closely to keep domestic inflation under control. This is conducted through the Registry of Export Operations (ROE), by which exporters need to apply for an export permit. If beef supply is short, the ROEs are delayed.

 

The government last year extended export restrictions until the end of March 2008, by which beef exports cannot exceed half of the volume exported in 2005. Under this resolution, around 40,000 tonnes (carcass weight equivalent) per month are allowed to be shipped. The Hiltonne quota, of 29,000 tonnes, is excluded from the export quota.

 

Producers retaining cattle
 

Producers are retaining their cattle and sending fewer animals to the market because they want to increase their weight.

 

They also anticipate higher prices for cattle because the price of most consumer goods in Argentina are increasing and since Brazil is limited in its exports to the EU.

 

The limited cattle supply has resulted in higher cattle and beef prices. The government has recently told slaughter plants that in March they will be allowed to export only 24,000 tonnes, reportedly 40 percent less than what had been agreed.

 

Most local analysts project that cattle supply will be short until mid-year. In the second half of 2008, supply is expected to increase significantly, when most large feedlots begin to market their fed cattle. What is not exported in these coming months, most likely will be shipped during the last quarter, as long as the supply is sufficient and prices are reasonably even, the report said.

 

Local meat packers and analysts estimate that cattle slaughter will be somewhat lower than last year's record level.

 

However, the average carcass weight is expected to bounce back to some extent primarily driven by the government's requirement to increase minimum live weight for slaughter.

 

In order to produce more beef per animal, especially from feedlots, a minimum live slaughter weight of 260 kilos was established by the government in 2005. It was then increased to 280 in 2006, but due to market conditions and short supplies, the GOA brought it down to 240 kilos in 2007.

 

In April 2008, the minimum weight will be reset at 260 kilos and will be increased to 280 kilos by the end of the year.

 

However, shrinking pastures due to strong crop production, low profitability, government price restrictions, and limited exports are discouraging the finishing of heavier cattle.

 

The government is also subsidizing feedlots to feed more cattle for local consumption, which tends to be marketed cheaper than the average. However, the market seems not to be ready to respond in kind - feeder cattle prices are approximately US$1 per live kilo for male calves, a very slim return.

 

With lesser pasture available, feedlots will set the price for a large share of the calf crop based on their feeding costs, the report predicted.

 

Feedlot occupancy at record high due to fewer pastures
 

Feedlot occupancy is currently at record highs (double the historic level for summer months), thanks to the subsidy provided by the government for beef production for the domestic market and widespread use of feedlots by beef export plants. One year ago, the GOA implemented a cross-subsidy scheme by which feed users would receive economic support funded by increased taxes on soy exports.

 

For cattle, registered feedlots are receiving approximately US$85 per head, in a 90-day cycle for cattle fed exclusively for the domestic market.

 

Through February 2008, the government had spent approximately US$14 million supporting beef output. The feeding support programme may be extended to the export market as well. Cattlemen, who feed high-energy rations to their cattle at the ranch, also want the government to include them under the support program.

 

With production and consumption levels for 2008 expected to be similar to 2007, export surpluses are expected to remain quite similar to 2007. Domestic beef consumption is likely to continue to be high in 2008, at about 66 kilos per capita. This is because of beef's relatively cheaper prices and higher purchasing power.

 

More beef plants foreign-owned
 

Until two years ago, practically all slaughter plants were of local capital. Since then, foreign beef companies have purchased most of the top slaughter plants in Argentina.

 

Brazilian companies have been very active, while US companies, at a smaller extent, have also purchased plants. Some 20 plants are now in foreign hands, and more acquisitions are expected in the near future, but at a slower pace, the report said.

 

The government recently presented a bill to reorder the local beef processing and commercialization system to focus on sanitary aspects of slaughter, elaboration and warehouses.

 

Apart from the subsidy for feedlots, the government also helped small and medium cow-calf operations who sold their weaning calves last year at very low prices because of market conditions. The programme may also be continued in 2008. Most players agree that the best strategy to overcome a shortage situation is to encourage production. The government announced a cattle plan last year, but so far, its implementation is very slow and has had little impact.

 

In other news, Argentina made its first shipment of pork to Georgia recently.

 

Argentina currently imports approximately 50 percent of its pork needs (primarily used in the cold cut industry). A local company, owned by foreign investors, has recently announced a US$500 million investment in pork production. The 5-year investment includes the production of 50,000 sows, a slaughter and processing plant for export and a balanced feed plant.