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February 6, 2015

More Cattle Placed in Brazilian Feedlots during First Half of 2015

The disappointing rains across much of central Brazil this summer have resulted in declining condition of the pastures and more cattle than normal being sent to feedlots. According to the National Association of Feedlot Operators (Assocon), historically only 13% of the annual total number of cattle placed in feedlots were placed during the first half of the year, but this year they expect that to climb to 17% of the annual total.

The vast majority of cattle placed on feed occurs during the second half of the year when the dry season in central Brazil takes a toll on the nation's pastures. Generally, the dry season in Brazil starts in May and ends in September or October. During that 5-6 month period the pasture grass is dry and the cattle can lose weight if there isn't supplemental feed available. This year, the disappointing summer rains in the states of Sao Paulo, Goias, and Minas Gerais have resulted in an early decline in pasture conditions. In order to forgo potential weight losses, some ranchers prefer to send the cattle to feedlots instead.

In 2014 there were 4.16 million cattle placed in feedlots in Brazil, which was an increase of 4% compared to 2013. Assocon expects another 4-5% increase in placements in 2015.

Another incentive for increased placements is the reasonable price of grain in Brazil. Feed costs, which represent 30% of the cost of confinement, are expected to remain reasonable due to the large corn stocks in Brazil and the potential for another record large soybean crop.

The purchasing of cattle to place on feed represents about 55% of the cost of the feedlot operation and lean cattle prices are current high, but fat cattle prices are high as well allowing for satisfactory margins for feedlot operators. Fat cattle prices on the BM&FBovespa exchange last Tuesday closed at R$ 142.45 per 15 kilograms, which was up 24% compared to a year earlier and near the historical high of R$ 145.48 reached late last November.

An increase in the number of cattle on feed is good news for Brazilian corn farmers who are facing low corn prices due to a burdensome domestic supply of corn. Mato Grosso is the largest corn producing state in Brazil producing 18 million tons of corn or more, yet the domestic consumption of corn in the state is only a little more than 3 million tons.