September 13, 2012

Brazil's beef prices down due to weather conditions

Uncertain weather conditions in Brazil have led to prolonged grass growth for cattle ranchers in some states and dried out pastures for others.

Overall, more rain than normal during the current cattle offseason is driving an oversupply, with consumer beef prices down across the country by as much as 30%.

More than 90% of slaughtered cattle in Brazil are still fattened by pasture. Cattle kept after March typically fetch a high price during Brazil's April-October dry winter.

However, weather in 2012 hasn't followed the Brazilian norm, making it difficult for farmers to predict beef prices through December. At the end of July, processors were paying US$41 per arroba (equivalent to about 27.5 pounds) for beef in Goias state, below the US$44.45 considered ideal for farmers, according to the Beef Cattle Commission of the Federation of Agriculture and Livestock of Goias, or FAEG. The commission expects prices in the 2012 second half to remain below expectations.

Rising grain prices should also discourage cattle feedlot confining in favour of pasture grazing, where available. In Mato Grosso, Brazil's largest cattle-producing state, feedlot confinement has been a focal point of rancher investment in recent years, because of the typically dry winters. Mato Grosso ranchers confined 813,000 cattle in 2011, second only to Goias state. That should decrease this year with more grass available, and corn prices that have risen from US$7.90 per sack in April to more than US$10.37 in August.

Quotes on live cattle futures contracts at Brazil's Bovespa stock market are currently at US$48.38 per arroba, down from US$49.89 in October 2011.