May 15, 2012

Industry Concentration led to low Cattle Prices and more Soy Prod.

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

The concentration of slaughterhouses in Mato Grosso and Mato Grosso do Sul into the hands of just a few processors was the subject of a meeting held yesterday in Campo Grande, the capital of Mato Grosso do Sul. The meeting was organized by the Association of Cattle Producers in Mato Grosso and Mato Grosso do Sul (Acrimat and Acrissul). According to these two organizations, cattle prices in these two states are being depressed due to a lack of competition among processors.

According to Acrimat and Acrissul, only eight processing facilities in the country account for 29.4% of the cattle processed in Brazil. In the state of Mato Grosso do Sul, only three facilities accounts for 70% of the cattle that are processed. In Mato Grosso, one company maintains 50% of the market and in some regions; it has 100% of the market share. There are reports out of Mato Grosso that ranchers are transporting their cattle very long distances, even to other states, in search of better prices.

Some in the industry are blaming the global credit crunch for the industry concentration, but many feel that domestic lending policies may also be part of the problem and they want to know why there seems to be a pattern of favoritism in lending policies. For example, cattle producers want to know why some processing companies were frequently loaned public money from BNDES (the National Development Bank), while others who were repeatedly denied had to close their doors.

These lending policies of BNDES have been one of the primary reasons for the industry concentration. In Mato Grosso, since 2009 the processing facilities of Quatro Marcos, Arantes, Independencia, and Pantanal have closed their doors. The Frialto and Mataboi facilities are currently trying to reorganize under bankruptcy supervision and a facility at Guapore has been leased to JBS Foods.

This lack of competition among processors has led to lower cattle prices and it has also stimulated the trend in recent years to convert pastures to additional production of soybeans and corn. Many ranchers in Mato Grosso have plowed up their pastures and planted soybeans in an attempt to capture record high soybean prices. Others have forgone cattle ranching all together and rented out their land to farmers who have the equipment and expertise to produce soybeans and corn. Over the last several years, nearly all the increase in soybean acreage in Mato Grosso has come from the conversion of pastures into row crop production.

As farmers in Brazil make plans for the 2012/13 growing season, record high soybean prices and mediocre cattle prices are expected once again to convince some farmers to reduce their cattle numbers and to increase their efforts to produce more soybeans and corn.