Cattle farming has registered a significant improvement during the 30 years that Cepea has conducted research in the sector. At the beginning, as Brazil experienced an environment of hyperinflation due to lack of fiscal and monetary control, agents were searching for assets to safeguard their business. In the agribusiness sector, players preferred to have cattle (calf, lean cattle, young bulls/steers, etc.) and coffee. The economic stability, obtained the after the implementation of “Plano Real” in 1994, allowed producers to professionalize their activities and to perceive fed cattle production as an investment, which requires a detailed planning. The industrial segment also started a new phase that time. The comprehension of the sector, as Cepea perceives it, is a result of an interaction with all links of the productive chain and its insertion in the international environment. However, two important aspects must be evaluated: cattle farming and processing.
In many decades, cattle farming has given up its most fertile lands with the best infrastructure to agricultural activities, whose value generated per area unity was higher. Cattle farming was found guilty, unfairly, as the main cause for deforestation. However, the strength of international markets helped to reserve this view. In 2003, Cepea studies, in a partnership with CNA (Confederation of Agriculture and Livestock of Brazil), indicated that roughly 250 hectares were necessary to keep 100 cows. These cows generated 45 calves, 170 kilos of live weight each. In 2016, on the other hand, 100 cows occupied 140 hectares, producing 65 calves with 200 kilos. Although it is distant to achieve its maximum capacity, productivity increased 283% per hectare and 172% per cow due to a huge investment of producers.
Moreover, there are cattle backgrounding and fattening. In 2010, according to Indea (Mato Grosso Agricultural Defense Institute) data, less than 5% of slaughtered animals were younger than 2 years old and more than 55% was older than 3 years old. Currently, approximately 15% of the animals are younger than 2 years old and 25%, older than 3 years old. Adding this to Cepea data on slaughter weight, animals that weighed 16.5 arrobas in 2010, weigh 17.4 arrobas today. Data show that yield per area and per animal has increased significantly; however, there is still room for gains. This scenario justifies the great attractiveness of cattle framing in Brazil for many investors worldwide.
The Brazilian beef industry was created because of Peronists in Argentina, who foresaw in Brazil a great beef source and possibilities of good trades. Therefore, Armour, Anglo, Swift and Wilson came to Brazil and brought international sanitary concepts, which were adopted by the Brazilian government. However, international enterprise left Brazil due to the European self-sufficiency and improvement of the Australian productivity at the end of the 1960’s. In that period, the fed cattle sector scenario in Brazil had poorly managed companies, underground market and inefficient governmental management, either regulating beef prices or making regulatory stocks and suspending exportations.
Only in 1994, economic stability was to mark a new dawn to the meat industry in Brazil, when companies that used to have financial gains from inflation closed their doors and international investors saw this scenario as a new niche for investments. In this new cycle, companies with several unities sprang up as well as trade roundtables to rationalize purchases and manage price risks. Therefore, the meat industry grew and developed. However, in 2008, the government started to influence directly on capital supply to companies. In 2005, Brazil had seven groups that slaughtered more than three thousand animals per day and accounted altogether for roughly 25% of total slaughters under sanitary inspection in the country. In 2016, only three groups were left, with approximately 50% of the slaughter capacity.
The major risk that the cattle sector faces today is the retreat in cattle farming. Productivity gains have been obtained in years, with huge difficulties, and investment cuts might compromise the entire system. In the 2013/14 summer, due to high temperatures and lack of rains in central-southern Brazil, carcasses were underweight. Cows calve mostly when the rain season starts to take advantage of pasture recovery. The dry weather affected both quality and number of calves that were entering the market in 2014, keeping prices at high levels. As these cows had not recovered from the birth, they also had low pregnancy rates with fewer calves in 2015 and adult animals, in 2016.
For 2017, it was expected a supply rebound, maturity of investments and retention of females. However, a sequence of externalities surprised players. First, a case of corruption in sanitary inspection affects credibility of this service, resulting in losses both in the domestic and in the international markets. After, the issue involving JBS Group and the current president of Brazil, Michel Temer, led the largest enterprise of the cattle sector to reduce slaughters drastically. The supply excess presses down fed cattle quotes in the domestic market and, on the other hand, lack of alternatives for the Brazilian meat pushes up beef prices in the international market. What is the way out of this scenario? The disruption of beef segment affects the entire animal protein sector.
The process to overcome the current crisis will be slow, but wrong decisions may cause an imbalance in the sector and drive back the fed cattle activity by 10 years. More than half of cattle slaughters under federal inspection are spread among small and mid-sized companies, which can represent a way out of several problems caused by wrong decisions in the past. Reopening closed plants to operate seems interesting, but they have to know how to distribute their production. Market opening is not performed overnight. To start a new investment cycle in the industrial sector requires reconquering reliability, with transparency and references of economical, productive, and socioenvironmental sustainability of these companies. The market of future exchanges also seem interesting. Attracting Brazilian and international hedge funds to the cattle future market is a way to offer investors a future view. The public sector can help significantly if it invests on sanitary defense and rethink the structure, offering more empowerment, with technical and unpolitical decisions.
The fed cattle sector is one of the great pillars of the Brazilian economy, employing more than 1.5 million people. It offers high-quality beef at accessible prices for a country with a population of more than 207 million people and generates exportable surplus that reach more than 170 countries. All in all, the fed cattle activity requires professionalism and intelligence to solve its problems.