December 20, 2012

Ranchers in Mato Grosso Send Fewer Cattle to Feedlots

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

When corn prices started to increase in mid-2012 due to the severe drought in the United States, ranchers in Brazil modified their intensions on how many cattle they were going to place on feed. The Mato Grosso Institute of Agricultural Economics (Imea) estimates that 792,000 cattle in the state will be placed on feed in 2012, which is a decline of 2.6% compared to the 814,000 cattle on feed throughout the state in 2011. In April of 2012 (before the drought started in the U.S. and the resulting higher corn prices), Imea had estimated that 930,000 cattle would be sent to the feedlots in the state. In early 2012, Imea estimated that the number of cattle on feed in the state would increase 14% in 2012.

When international corn prices increased so too did the cost of placing cattle on feed within the state. In 2011, the average cost of an animal in a Mato Grosso feedlot was R$ 4.32 per animal per day. In 2012, that increased 22% to R$ 5.28 per animal per day. With such an increase in costs, ranchers started to reevaluate their marketing plans in mid-2012.

In July of 2012 when corn prices were setting record highs, just 9% of the cattle slaughtered in the state came from feedlots. The market situation though has improved in recent months with a decline in corn prices and an increase in cattle prices in Brazil. As a result, ranchers have started to send more cattle to the feedlots in recent months. By August, the percentage of slaughtered cattle coming from feedlots increased to 26%. In September the percentage was 35% and in October it was 36%.

When the number of cattle on feed started to decline in mid-2012, cattle prices in the state started to increase due to fewer cattle going to market. Between August and November, cattle prices increased 8% going from R$ 81 per 15 kilograms live weight to R$ 88 per 15 kilograms. Even with this increase, cattle prices are still below the level set in November of 2011 when they were R$ 92 per 15 kilograms.

With the cattle market unstable and commodity prices high, many ranchers decided to do what is called semi-confinement. This entails keeping the cattle on grass during the dry season (May to October), but supplementing the grass with feed supplied to the cattle while they are still out in the pastures. This is much cheaper than taking the cattle off grass and placing them in feedlots.

The cost of semi-confinement is approximately 30% less than if the animal is placed in a feedlot. The animal in a feedlot costs R$ 5.28 per day compared to R$ 3.60 per day for semi-confinement.