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Smaller Herd Fuels Higher Beef Prices

Argentines ate more beef than ever last year as prices lagged other staples, but now a shortage of livestock is driving up steak prices and raising the spectre of tougher government controls in the market.

In the rambling pens at Buenos Aires’ main cattle market, traders say the recent rise in prices was long overdue and could stop even more farmers selling off their herds to use their land for more profitable crops, such as soybeans.

“Ranchers were getting very low prices and that drove many of them to sell off their herds,” said Sergio Terrani, a cattle broker at the Liniers market, adding that a prolonged drought had forced many to run down their herds.

“They couldn’t afford to buy rolls (of hay) with prices so depressed, so a lot of farmers decided to sell,” he added.

But recent rains have rejuvenated the grazing pastures of Argentina’s legendary Pampas plains, encouraging ranchers to fatten up their animals instead of sending them to market.

The current slowdown in slaughter rates should eventually boost supplies, but for now it means fewer animals are being sent to market and average prices have risen 16 per cent in the last two months at Liniers. Local media are reporting increases at butchers’ counters of about 40 per cent.

Higher prices are good news for ranchers, Agriculture Minister Julian Dominguez said this week, but some analysts fear a renewed crackdown by the government’s price watchdog, Domestic Commerce Secretary Guillermo Moreno.

“There’s optimism over the prices, but it’s cautious optimism because ranchers fear the government won’t stand for this level of increase,” said independent beef industry analyst Belisario Castillo.

So far this year, 132,242 animals have been sent to Liniers, down 20 per cent from the same per iod last year. Beef export volumes surged more than 57 per cent in 2009, partly reflecting farmers’ decision to send cattle to slaughter.

Some industry analysts say delays in subsidy payments to feedlots late last year have also disrupted the flow of livestock to market.

TOUCHY SUBJECT

Rising beef prices are a touchy subject in Argentina, where a barbecue is considered a birthright, and the government closely monitors the cost of the meat to keep consumers happy.

“Anything that happens with beef prices is news here. Historically, beef has destabilized presidents,” said a source in the meat-packing industry, who asked not be named.

The world’s biggest beef eaters, the average Argentine ate more than 73 kilograms (161 pounds) of it last year, the highest rate for 15 years, according to the latest data by the meat industry group CICCRA. That compares with about 43 kgs in the United States.

And beef weighs heavily in Argentina’s inflation index.

Despite a sharp slowdown in Lat in Amer ica’s No. 3 economy last year, inflation remained stubbornly high and food prices rose 1.6 per cent in December, according to official data. Private surveys put real inflation much higher.

The government’s Moreno keeps a close eye on prices and meets meat industry leaders every Friday. Any sign that demand is outstripping supply results in a slowdown on export licences granted by the state-run ONCCA farm trade agency, industry sources say.

“This government’s beef policy is first supply the domestic market, then if there’s anything left, export,” said the meat-packing industry source.

Argentine farmers have been at odds with the government over farm policy for years and they staged strikes and roadblocks in 2008 when the government hiked soy export levies. Officials defend such measures as a way to redistribute the nation’s farming riches.

REJUVENATE

Some analysts say higher prices could help rejuvenate the ranching industry and stem a trend of ranching pastures being turned over to soy – Argentina’s top crop.

“From now on ranching’s going to be an option again,” said Raul Milano, executive director of the Rosgan televised cattle market run by Rosario grains exchange.

“It’s come too late for thousands of farmers who’ve already lost their herds, but we predict a promising outlook for the coming years,” he said in a statement.

At Liniers, it seems like business as usual. Workers on horseback herd cattle into pens as traders gather for auctions, but many fear a return to the tense times of recent years when government officials patrolled the market in person.

“From 2006 onward, when the intervention started, the amount of cattle on sale started to fall sharply,” said Jorge Longobuco, Liniers operations manager, adding that repeated price controls had eroded the market’s traditional role.

“If there’s less supply, the buyers will pay a bit more to get hold of the goods … the only thing that intervening in the market does is cause distortion,” he said.

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