March 11, 2011

Brazil's cattle production costs show increase

Operational costs for Brazil's cattle farmers increased 21% last year, according to a survey conducted by the Brazilian National Agricultural Confederation and the University of São Paulo.

Despite the 21% rise in operational costs for the past year, producer margins actually increased on-year, with average grown steer prices lifting 40%. Comparatively, cost increases for 2010 were the second highest on record, after the 33% increase in 2008. In 2009, production costs actually retreated 3.4% on-year, while cattle prices declined 7%, largely the result of lower demand due to the global economic crisis.

According to the 2010 survey, significantly dearer restocker cattle accounted for the majority of the rise in producer costs, which accounted for 28% of the total costs. One of the most noticeable changes in the cost structure for Brazilian cattle producers during 2010 was a decline in the proportion of costs taken up by mineral supplements, falling from 29% in September 2008, to 21% in 2010. 

Meanwhile, the cost of labour for Brazilian cattle producers has increased steadily in recent years, with the legal minimum wage rising. At the beginning of 2004, labour costs made up 16% of total production costs, compared to 23% for 2010 - the second highest cost of production behind cattle purchases.

Reflecting the increased costs for cattle producers, the Brazilian government has been concerned about rising inflation. It recently increased its overnight lending rate to 11.75% per annum, with the aim of achieving 5.53% consumer price index growth in 2011 (Carta Pecuária).