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March 22, 2012

Feedlot Operations Continue to Expand in Brazil

As farmers in Mato Grosso, as well in other parts of Brazil, convert more pastureland into row crop production, cattle ranchers are putting more of their cattle into feedlots to compensate for the reduced pastures. During the last three years, more than 800,000 hectares of pastures in the state of Mato Grosso have been converted to soybean production and with stricter enforcement of new environmental regulation, there will be less opportunities in the future to clear virgin land for expanded soybean production. As a result, the trend for increased feedlot operations is expected to continue and even accelerate.

Corn producers in the state are encouraged by the trend of more feedlot operations because it offers another option for selling their corn instead of shipping it to livestock producers or exporters in southern Brazil, thus eliminating the high cost of transportation. It is estimated that the state of Mato Grosso will produce at least 10 million tons of corn in 2/11/12, yet only 2 million tons are consumed within the state. Therefore, any additional consumption in the form of animal feed is viewed very positively by everyone in the ag sector.

In 2011 the number of cattle on feed in Mato Grosso increased 28% and it is expected to increase another 15% in 2012 to 878,000 head. In comparison to 2005, the number of cattle on feed in Mato Grosso is up 550%.

According to the president of the National Association of Feedlots (Assocon), Eduardo Moura, there are two factors contributing to the increase number of cattle on feed. The first and most important factor is strong commodity prices which are encouraging farmers to expand their production of soybeans, corn, and cotton.

The second factor is the degraded condition of many pastures in the state. The Mato Grosso Institute of Agricultural Economics (Imea) estimates that there are 6 million hectares of degraded pastures in the state of Mato Grosso alone. Pastures in Brazil have rarely been treated as a crop and as a result, many have very low fertility and very low carrying capacity. It is these poorly managed pastures that Embrapa has been targeting for conversions to additional row crop production.

Confinement costs are expected to increase by 1.7% compared to last year to R$ 14.00 per day per head. Even with the increase in cost, Imea estimates that feedlot operators can still turn a profit. The average gain in the feedlot is in the range of 1.4 to 2.0 kg per day or an average of 1.65 kilograms per day.

Even with the increase in confinement operations, the number of cattle on feed in Mato Grosso is a very small percentage of the 29 million cattle in the state.