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April 7, 2017

Cattle Prices Decline in Brazil as Processors Slow Production

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Brazilian beef processors continue to struggle with the aftermath of the Carne Fraca scandal which broke three weeks ago. The major beef processors in Brazil have announcing temporary suspensions of processing in order to adjust their inventories in light of slow sales both internationally and domestically.

The top three beef processors in Brazil are JBS, Marfrig, and Minerva and all three have announced that they will temporarily suspend production at a number of their beef processing facilities. At the start of this week, JBS announced a 20-day suspension of processing at 10 of their 36 facilities in Brazil. Minerva announced a 20-day suspension at their facility at Varzea Grande, Mato Grosso and Marfrig will suspend the second shift at their facility at Tangara da Serra, Mato Grosso for 10 days.

Mato Grosso is the largest cattle producing state in Brazil and at least seven beef processing facilities in the state have temporarily suspended production. The result has been a sharp decline in live cattle prices in the state.

The Mato Grosso Institute of Agricultural Economics (Imea) reported that cattle prices in the state declined 2% to 4% during the 10-day period following the announcement by the Brazilian Federal Police concerning the Carne Fraca investigation. The Mato Grosso Ranchers Association (Acrimat) stated that some ranchers saw at least a 10% decline in live cattle prices over the last two weeks especially in the north and northeastern regions of the state where there are fewer processors.

In many areas of the state there is only one beef processor, so ranchers have no other alternative but to sell their cattle to the local processor and ranchers are concerned that prices may decline even further in the coming months.

With the processors temporarily suspending operations, ranchers are forced to keep their cattle off the market longer than desired allowing the cattle to gain additional weight. The fear is that when the summer rainy season ends and pastures start to dry out, there will be a glut of cattle coming onto the market in May and June with heavier than normal weights. This could pressure live cattle prices even further especially if the processors are still working through some of their excess inventories. Ranchers will be anxious to sell their cattle, but processors will not be anxious to purchase cattle, thus they may offer lower prices.