September 2, 2010

Brazil's cattle stocks remain low

Brazilian cattle prices are starting to approach the high levels of 2008 prior to the global economic and financial crisis as supplies remain tight.

Revised estimates indicate that the recovery may take longer while the industry initially expected a recovery in cattle throughput by early 2011. The anticipated delay in throughput comes as a result of the high prices for calves witnessed across the market in recent month, suggesting that producers did not retain the required breeding cattle in previous years.

Between 2004 and 2006, Brazilian cattle producers liquidated herds and boosted beef production, fuelled by low revenues, a competitive currency and strong export demand.

Although cattle prices experienced a fall in the second half of 2008 as a result of the global financial and economic crisis's impact on consumer demand, Brazilian grown steer supplies had been constrained since late 2007.

The current low cattle supply has also reportedly forced many processors to operate below capacity, which combined with higher operating costs, has impacted returns to the sector. However, a resilient domestic market in recent years has helped to somewhat alleviate the difficult situation.

The local government is currently designing strategies to encourage the retention of breeding cattle in order to increase the industry's competitiveness over the medium term.