February 21, 2013

Brazilian Ranchers Grow More Soy due to Weak Cattle Prices

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

It is easy to see why some cattle ranchers in central Brazil are plowing up their pastures to grow more soybeans and corn. It's all due to economics - the poor economics of cattle production and the good economics of soybean and corn production.

According to a recent study conducted by the Mato Grosso Ranchers Association (Acrimat), in December 2012, the average price paid for cattle in the state was R$ 84.87 per 15 kilograms of live weight while the cost of production was R$ 87.85 per 15 kilograms. That R$ 3 difference resulted in a loss of R$ 900 per truckload of 18 beef cows (a loss of approximately US$ 25 for each cow sold).

As a result, cattle ranchers in the state closed out 2011 in the red. Between December 2011 and December 2012, cattle prices declined 9% from R$ 93.93 per 15 kilograms live weight to R$ 84.87 per 15 kilograms while at the same time their costs for such things as mineral supplements increased as much as 38%.

The news was even worse for ranchers who finished their cattle in feedlots due to a lack of pastures. There loses were even greater due to the high cost of feed, especially corn. In the regions of the state where the pastures remained good enough to finish the cattle, the ranchers managed to eke out a profit.

Cow-calf producers also did better than just beef producers. In January of 2012, a rancher could purchase 2.11 replacement yearlings for each beef cow he sold. In December of 2012, the sale of that same beef cow could purchase 2.08 yearlings.

At these low prices, ranchers cannot afford to renovate their pastures or apply the fertilizers that would be needed to increase productivity. Ranchers would like the government to step in and support prices like they do for corn producers. They feel the government should set minimum prices for cattle and be willing to purchase cattle when prices hit that minimum.

The study also looked at the long term trends for profitability in the sector. During a nine year period between 2003 and 2012, beef cattle producers in the state only turned a profit during two years, between November 2003 and November of 2004 and then again between August 2010 and November 2011. Of the nine years analyzed, cattle ranchers made profits only during 27 months.

The conversion of pastureland into soybean production can turn a profit as soon as the second year if the weather cooperates. How soon these new fields of soybeans turn profitable depends to some extent the fertility of the soil. One of the major costs of the conversion is the amount of fertilizers needed to increase the soil fertility. If the pastures were degraded and poorly maintained, then the costs will be greater due to the amount of agricultural limestone and fertilizers that need to be applied to the soil. If the fertility of the pastures had been maintained before the conversion, then less fertilizers will be needed to produce a profitable yield of soybeans.