Porto Alegre, August 12, 2021 – The Brazilian beef market continues its trajectory of enormous resilience. Fattened cattle prices even showed some decline in July, but they are much higher than in previous years. In the interior of São Paulo, negotiations have ranged from BRL 315 to 320/arroba depending on the lot. Animals that meet export requirements for the Chinese market continue with high demand.
Supply restriction is a striking element in the current year, working as an important support factor to domestic prices. The differentiated price curve since the second half of 2019 has resulted in a common situation of retention of females, which ended up having a negative impact on slaughter. Moreover, the timing of the beef production cycle leads to a supply bottleneck resulting from the expansion of the slaughter of matrixes in mid-2017 when the sector faced some crises, such as Operation Weak Meat and the plea bargain of the J&F Group. As this is a long-cycle activity, the consequence of this late strategy, basically the birth rate does not keep up with the demand for replacement animals.
Calf and lean cattle prices remain close to their historic highs. As is known, the main cost of beef cattle is replenishment. The exchange ratio in 2021 has been very unfavorable for terminators. Besides, animal nutrition cost has also surged over the year, following the behavior of corn prices. Despite the expected evolution of confinement during the off-season, such numbers will be limited due to the current cost structure. This is undoubtedly one of the main support points for the beef chain. The retention of females tends to positively impact the volume of replacement animals from next year, with advances in the supply of calf and lean cattle.
In 2021, slaughtering is at a historically low level. According to federal, state, and municipal inspection data, in the first half of the year around 14.5 mln head were slaughtered, a decrease of nearly 6% from around 15.5 mln head in the same period last year. The year 2020 was already weak in terms of slaughter, with the worst performance since 2009. According to a projection by SAFRAS & Mercado, around 30.96 mln head must be slaughtered this year, presenting a decrease of approximately 1 .6% compared to last year. In other words, the restricted supply of finished animals will be a constant until the end of the year.
With these numbers, the trend is for Brazil to produce a smaller volume of beef compared to 2020. According to a projection by SAFRAS & Mercado, the expectation is that around 8.33 mln tons of beef are produced, roughly 1.8% lower than 8.49 mln tons in 2020.