Where's the Beef? Not in Argentina as Drought Drives Away Brazil's JBS

Argentines have lost their title as the world’s biggest beef eaters after the worst drought in 70 years and government export limits led ranchers to reduce the number of cattle on the Pampas.

Consumption is slumping to 57.3 kilos (126 pounds) a year, the lowest since 1958 and below neighboring Uruguay, where each person consumes as much as 60 kilos annually, according to beef industry associations in the two countries.

The decline in cattle numbers will “be even worse next year” because fewer calves were born during the two-year drought that ended in 2009, said Ricardo Buryaile, a rancher and congressman who heads the Agriculture and Livestock Committee in the Lower House.

The reduced herd caused shipments from what was once the world’s biggest beef exporter to plunge about 50 percent this year, allowing Uruguay to pass it as a global supplier. The contraction is hurting meatpacker profits, leading Brazil’s JBS SA, the world’s biggest producer of the red meat, to consider selling plants in Argentina.

Cattle futures on the Chicago Mercantile Exchange fell for a fourth day, dropping 0.2 percent to close at 96 cents a pound at 1:30 p.m. Prices touched a 23-month high of $1.0265 on Sept. 17. In the past year, prices have gained 16 percent.

Joe Schuele, a spokesman for the Denver-based U.S. Meat Export Federation, said prices have risen because of an improving world economy and increased demand.

U.S. exporters have “probably made modest gains” as a result of Argentina’s drop in production, Schuele said.

Rising Prices

Argentine cattle prices almost doubled in 2010 to 6.67 pesos ($1.67) per kilo from 3.46 pesos at Argentina’s largest market, the Mercado de Liniers in Buenos Aires.

Argentina’s Ministry of Agriculture forecasts beef exports will exceed 360,000 tons in 2010, ministry spokesman Pablo Lopez said in a Sept. 22 phone interview from Buenos Aires. Last year, Argentina exported compared 419,337 tons, ministry data show.

Lopez declined to comment on the effect of export controls on the industry.

Argentina’s drought, which lasted from 2007 until early last year, parched pastures, cut wheat production to its lowest since 1975 and reduced soybean harvests by as much as a third, according to government data.

Faced with a lack of forage and export controls that prevented prices from reflecting international values, ranchers sent a record number of animals for slaughter last year, Buryaile said.

Production Decline

During the past two years, the national herd dropped 15 percent to 49 million head, data produced by the Buenos Aires- based Argentine Agricultural Sanitary Agency show.

In the first six months of 2010, beef production dropped 21 percent to 1.3 million tons, according to Argentina’s National Beef Promotion Institute, known as IPCVA. In the same period, average per capita consumption fell to an annualized rate of 57.2 kilos from 69 kilos in 2009.

Argentina’s agricultural ministry this year increased minimum cattle slaughter weights in a bid to curb declining supplies. Slaughtering heavier cattle will increase inventories in the long term, the government said. The weight was raised to 165 kilograms on May 1 from a 154-kilogram limit set on April 1. Before then the limit was 143 kilograms.

Brazil, the world’s second-biggest beef producer and the leading exporter, processed 8.95 million tons in 2009, according to the Washington-based U.S. Department of Agriculture.

Uruguay Gains

In Uruguay, consumption ran at an annualized rate of 58.2 kilos per person in the first eight months of this year, the same as in 2009, and may rise to as much as 60 kilos per person by the end of 2010, Beatriz Luna, the spokeswoman for the Montevideo-based Uruguayan National Beef Institute, or INAC, said in a telephone interview on Sept. 20.

After overtaking Argentina as a beef exporter, Uruguay now ranks sixth in the world, with Argentina seventh, according to Miguel Jairala, a statistician at the Buenos Aires-based IPCVA.

In the first seven months of this year, Argentina’s shipments abroad fell to 110,000 tons from 222,000 tons a year earlier, IPCVA data show. Shipments from Uruguay rose to 161,317 tons from 147,526 in the same period, according to INAC.

A reduction in the herd, rising livestock prices and export restrictions that Argentine President Cristina Fernandez de Kirchner introduced in 2008 to guarantee local supplies are eroding meatpackers’ profits, said Luciana Leocadio, an analyst at Rio de Janeiro-based brokerage Ativa Corretora.

Meatpacker Profits

Higher costs at the Argentine unit of Marfrig Alimentos SA, the world’s fourth-biggest beef producer, will reduce profit at the Sao Paulo-based company in coming quarters, Leocadio said in an Aug. 31 research note. Marfrig’s Argentine unit accounts for about 12 percent of the company’s revenue.

A Marfrig press officer, who can’t be named under company policy, declined to comment.

JBS SA said on Aug. 29 it may close three of its six plants in Argentina.

“Every time you think things cannot become worse it becomes worse,” Joesley Mendonca Batista, chief executive officer of Sao Paulo-based JBS, said in an Aug. 16 conference call with analysts. “We have six factories, four factories are not operating.”

JBS spokeswoman Vanessa Esteves didn’t respond to an e-mail seeking additional comment.

To contact the reporter on this story: Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net

To contact the editor on this story: Dale Crofts in Buenos Aires at dcrofts@bloomberg.net

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Photographer: Diego Giudice/Bloomberg

Cows wait to be auctioned at the Liniers cattle market in Buenos Aires.

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Photographer: Diego Giudice/Bloomberg

Cows wait to be auctioned at the Liniers cattle market in Buenos Aires. Close

Cows wait to be auctioned at the Liniers cattle market in Buenos Aires.

Photographer: Diego Giudice/Bloomberg

Butchers cut beef into pieces before being packaged at a CRPM processing plant outside Buenos Aires. Close

Butchers cut beef into pieces before being packaged at a CRPM processing plant outside Buenos Aires.

Photographer: Diego Giudice/Bloomberg

Cows wait to be auctioned at the Liniers cattle market in Buenos Aires. Close

Cows wait to be auctioned at the Liniers cattle market in Buenos Aires.

Photographer: Diego Giudice/Bloomberg

Cows wait to be auctioned at the Liniers cattle market in Buenos Aires. Close

Cows wait to be auctioned at the Liniers cattle market in Buenos Aires.

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