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November 29, 2013

Cattle on Feed in Mato Grosso Declines due to High Costs

In addition to being the largest soybean, corn, and cotton producing states in Brazil, Mato Grosso also has the largest cattle herd in the country as well totaling approximately thirty million head. Traditionally, nearly all the cattle in the state had been grass fed, but finishing cattle in feedlots has been a growing trend over the past decade. Finishing cattle in feedlots only became a viable option after corn production started to increase in the state. The availability of corn allowed ranchers to put cattle on feed thus reducing the time it takes for cattle to reach market weight.

The profitability of feedlot operations depends on cattle prices and the cost of feed, especially corn. The international price of corn has been near record highs for a number of years squeezing the margins of feedlot operators. As a result, the number of cattle placed on feed declined 9% in 2013 compared to 2012. According to the Mato Grosso Ranchers Association (Acrimat), there will be 712,000 cattle on feed in the state in 2013 compared to 792,000 in 2012. Corn prices in the state have fallen significantly in recent months and as a result, the number of cattle in feedlots could increase in 2014.

During the 2012/13 growing season farmers in the state produced nearly 22 million tons of corn, which is up from only 7 million tons just two years ago. Record high corn prices due to disappointing corn production in the United States encouraged farmers to greatly increase their corn acreage, but now there is an excess of corn in the state and prices have fallen to below the cost of production.

The domestic consumption of corn in the state is estimated at only 3.5 million tons per year, with the remainder of the corn destined for livestock producers in southern Brazil or exporters. The problem for corn producers in the state is the high cost of transporting the corn to distant markets. The cost of transporting the corn to ports in southern Brazil is approximately US$ 3.00 a bushel which is more than the average market price in the state which is about US$ 2.30 a bushel.

As a result, farmers prefer to sell their corn to the government at the guaranteed minimum price which is about US$ 2.90 a bushel. The government then subsidizes the transport of the corn to other parts of Brazil. The federal government has three different programs designed to support corn prices in Brazil and nearly half of the corn sold thus far in the state during 2013 has been to the government.