September 14, 2007

Continuous climb for South America livestock prices

Prices of live steer from South America have been on the rise since January 2003, spurring lesser price gaps with Australian live cattle. The gap was at its maximum level in 2004-05, after Asian markets banned US beef for mad cow disease.

Since January 2003, livestock prices in the state of Rio Grande do Sul in Brazil increased by 152 percent due to the appreciation of Brazilian reals against the US dollar by 85 percent. The rise was also attributed to the state's market expansion to Russia, China, Chile and EU. The price hike was also due to tight supplies as cattle raising was primarily displaced to raise more profitable crops such as soy and corn.

Uruguay's heavy steer prices also saw a strong rise after its re-entry to the US market in May 2003. Prices have also surged in recent months as a result of tight cattle supplies. Improved pasture conditions this spring has likewise encouraged producers to retain cattle for finishing, following cattle liquidation during the severe drought in 2006.

In Argentina, steer prices have risen at a much slower pace by 35 percent since early 2003. Price spikes further slowed down in 2006 as the industry was hit with export restrictions, price controls and increased export taxes over Argentine government's attempts to keep domestic prices stable (80 percent of production is consumed domestically). Rising grain prices has also induced many cattle producers to shift to agriculture crops.

Meanwhile, Australian medium steer prices have increased 80 percent in US cents terms since early 2003, due to intense demand from Japan and Korea as well as the appreciation of Australian dollar by 42 percent. As a consequence of the more rapid rise in South American prices, Brazilian and Uruguayan cattle profits are now only around 20 percent below those in Australia - compared with a peak of 60 percent below for Brazilian prices in late 2004 and 40 percent in Uruguayan prices in early 2005.