An analysis of the market for fat cattle revealed a price increase never before seen in the sector. According to the CEPEA index—the sector’s primary spot price benchmark—the price per arroba of fat cattle closed the first half of 2020 at an average of nearly R$ 200.00, a 15.2% increase compared to the second half of 2019, which itself had seen a sharp rise due to the expansion of the Chinese market and strong domestic consumption. In contrast, when comparing the current price to the same period last year, the price per arroba showed an even greater increase (31.2%).
One of the points that may justify this price increase was the difficulty meatpacking plants had in purchasing raw materials in the first half of the year, given the low availability of animals ready for slaughter, especially during the off-season, and the higher percentage of female retention in the herds. Data from Agriffato Consultoria presents the slaughter scenario for the first half of the year, which showed one of the lowest figures in history. Thus, the slaughter estimate for 2020 is 36.77 million head vs. 41.55 million at the beginning of the year (Farmnews).
There are rumors in the market that during this period, the first cycle of feedlot operations saw a decline in production due to the uncertainties caused by the novel coronavirus, as well as difficulties in sourcing lean cattle. Both scenarios led to reduced margins for cattle ranchers, taking into account the analysis of the terms of trade for the period. This indicator uses the CEPEA replacement price (calf) and the fat steer indicator to determine how many young animals a producer can purchase with the sale of one animal ready for slaughter. The result of this indicator also uses an average carcass yield of 55% as a reference.
In the first half of 2020, the indicator was already below its historical average, and the scenario worsened due to the upward bias of restocking not being supported by the upward bias of fat cattle.
In addition, the feedlot operator also noted an increase in daily feed costs driven by higher input prices for the diet. According to the ESALQ/BM&F-BOVESPA corn index, there was an increase of R$ 13.68/sc compared to the same period last year. For soybeans, the Paranaguá indicator is even higher, reaching an increase of R$ 20.45/sc. This is due to grain exports driven by the strengthening exchange rate, which has remained above R$ 5.00 per dollar, and strong foreign demand resulting from the trade war between the U.S. and China, which has boosted purchases of Brazilian commodities. Consequently, it is becoming increasingly difficult to purchase these products within the sector, particularly for the processing and production of soybean meal. According to data released by CEPEA on July 28, 2020, only 5% of soybeans is available for the domestic market.
This increase in commodity prices and the price of lean cattle was reflected in data from the Laboratory of Socioeconomic Analysis and Animal Science at USP Pirassununga. Daily costs for a large feedlot in São Paulo and Goiás rose by 13% and 27%, respectively, compared to the same period last year.
Drawing an analogy with aviation, where an accident is rarely caused by just a single factor, the cattle market presents the exact same scenario. The sum of each of the factors presented above represents the links of a chain that are equally responsible for the current scenario of uncertainty and major challenges for Brazilian livestock farming. Therefore, if the cattle rancher relies on conventional strategies—the “bread and butter”—for protocols, management, and nutrition, it will be very difficult to achieve profitable margins, especially from the perspective of closing the cycle. It is in times like these that cattle ranchers must seek production technologies that generate a return on capital and greater profitability for their investments, bringing greater security to the operation.