Brazil Cattle Outlook Annual

Post forecasts beef production in 2021 at 10.5 million metric tons, which is an increase of 4 percent. The main drivers are solid exports, mostly to China, and improved domestic demand. Post also forecasts pork production to increase by 4.5 percent and reach a record of nearly 4.3 million metric tons, reflecting continued strong exports to China, improved domestic demand, and stable feed costs next year. The optimism behind this outlook reflects a recovery of the Brazilian economy, currently projected to grow 3.5 percent in 2021, with continued lower inflation, a stable unemployment rate, and improved consumer purchasing power. Fluctuations of the exchange rate, fragile world economic recovery and a resurgence of coronavirus infections are uncertainties in the animal protein industry.

EXECUTIVE SUMMARY
The outlook for beef and pork production in 2021 calls for records in production and exports for both meats. The main driver supporting post projections is another record export year for both beef and pork, mostly due to strong Chinese purchases and the strengthening in domestic demand due to a rebound in economic activity of 3.5 percent expected for next year. There are also other encouraging production factors fueling optimism in the animal protein industry, such as stable feed costs due to projected bumper soybean and corn crops, increased carcass weights and prospects for another year of higher profit margins. However, there are three uncertainties facing the animal protein sector in 2021: fluctuations in the exchange rate, a fragile world economic recovery and a resurgence of Covid-19 infections.

Review of 2020: Post made some minor changes to the 2020 estimates for beef and pork due to improved domestic demand, although for both demand is still below last year. Brazil’s economic contraction in 2020 has been less deep than previously forecast, with an annual GDP decline estimated at around 5 percent, against previous estimates from 6-9 percent. In addition to the reopening of the economy, the economic stimulus package containing a monthly allowance to the poor and those that lost their jobs is likely to be extended until the end of the year. The stimulus package helped prevent a deeper drop in domestic demand.

Cattle

Production
Post forecasts calf crop production in 2021 to increase by 2.5 percent supported by increased productivity and higher demand for beef. Two main factors characterize cattle production in 2020: limited cattle supplies and record beef exports, with both providing strong domestic price support to producers will likely spill over into 2021. Production is expected to increase from both grass fed systems and feedlots.

Several government programs support expansion of the cattle industry in Brazil, such as subsidized agricultural credit for pasture improvement, recovery of degraded pastures, crossbreeding programs using imported cattle genetics, proper nutrition, and increasing use of reproductive technologies. 

Brazil is officially divided into five regions: North, Northeast, Center-West, Southeast and South. About 60 percent of Brazil’s cattle herd is concentrated in the Center-West, North regions, mostly in the states of Mato Grosso, Mato Grosso do Sul, and Para, with much of the production concentrated in the preamazon area. Illegal deforestation and seasonal forest fires in the region, most occurring in the annual dry period (May through September), have placed cattle producers under scrutiny from the international community, mostly from the European Union. Major packers are reviewing their supply chain of cattle for sustainability and increasingly checking the origin of the cattle.

Livestock production in Brazil is mostly grass fed. Feedlots only account for an estimated 10 percent of Brazil’s meat production. However, trade analysts expect production of meat under some type of feedlot system to double in the next five years, mostly in the Center-West, as a means to limit the weight loss common in the dry season (May through September).

Increasingly livestock operations are using the “industrial cross” of the local Nelore with U.S. or Argentine Angus genetics. This industrial cross is both heat and tick tolerant (from the Nelore) while at the same time providing feed efficiency (Angus). Though generally in Brazil there is little premium paid for quality marbling, feedlots around the Campo Grande area in Mato Grosso do Sul reported minimal premiums for industrial cross cattle compared to straight Nelore. Producers of the so-called “China cattle”, (a steer less than 30 months old with less than 4 permanent incisor teeth) are also obtaining roughly a two-dollar premium on top of the normal cattle price.

Price Outlook
During the past 12 months (Sep 2019 through August 2020), the average price of fed cattle increased by 43.4 percent and is currently trading around R$ 230 per “arroba” (metric unit of 15 kilograms and equal to 33 pounds). Calf prices are also at record levels. During the past 12 months the calf price increased by 54.9 percent and is currently being traded at R$1,338 per head. Post supports the view of many Brazilian cattle specialists that the outlook for 2021 is for firm cattle prices supported by strong beef exports and growing domestic demand.

Trade

Imports: Brazil is not a significant importer of live cattle, but a major importer of beef and dairy cattle genetics with the United States being a traditional supplier of cattle semen to Brazil. During Jan-Jun 2020, imports of beef cattle semen increased by 35 percent, despite a devaluation of the Brazilian currency of 36 percent over the same period. The U.S. market share increased to 75 percent in the first half of 2020 against 63 percent in 2019. Traders expect cattle semen imports to increase in 2021 due to continued improvement of domestic cattle prices, availability of government funds at subsidized interest rates under the cattle genetic improvement program and a stable exchange rate.

Exports: Post forecasts a small recovery in cattle exports in 2021 due to higher cattle availability and a likely stable exchange rate. Because of limited cattle supplies and higher cattle prices in 2020, all major importers of Brazilian cattle reduced their purchases of animals from Brazil. For 2021, Post expects Brazil to become more competitive in the world market for live animals. In addition to the return of traditional importers of cattle from Brazil, new promising markets are expected to increase purchases from Brazil, such as Saudi Arabia and the United Arab Emirates.