Argentine feedlots hold 2.05 million cattle in pens at 72% occupancy, ten points more than a year ago, while slaughter outflows remain limited and the gross margin shows losses of 60,853 pesos per head.
Argentine feedlots are going through an atypical dynamic for this time of year: there are 2.05 million cattle in fattening pens and occupancy stands at 72%, ten percentage points above last year's figure, according to data from the Servicio Nacional de Sanidad y Calidad Agroalimentaria (Senasa) and the November survey by the Cámara Argentina de Feedlot covering 119 member operations.
Slaughter outflows remain limited and the replacement ratio stood at 1, meaning one animal came in for every one that left those pens. Historically, at this time of year it was normal for a larger cattle supply to push prices down; this time the decline is linked to local demand with little purchasing power.
“We are clearly in a new dynamic for the pens, a different one. It is atypical for this time of year,” explained Fernando Storni, president of the Cámara Argentina de Feedlot. The industry leader stressed that September is usually the month with the largest cattle outflows to slaughter for domestic consumption, but this year a significant share of those animals stayed in the pens. In many cases that cattle will end up leaving at heavier weights, also headed for exports, in a scenario of stronger international demand and with kosher slaughter providing another boost.
The makeup of the cattle on feed reflects the advance of the exporting industry over the fattening business. At hotel-type feedlots, 58% of the cattle is destined for export and the remaining 42% for domestic consumption. In addition, the association's report indicates that 68% of the animals housed at those operations belong to the meatpacking industry.
Of the beef produced this year, 35% went to international markets, which is why domestic supply shrank to an average of just 45 kilos per person per year, in a context where cattle values fell more than 10% in nominal terms over the past seven months and slaughter dropped 10%.
The economic problem persists. The ratio between the price of feeder cattle and finished cattle remains very high: the spread is around 35%, well above the 20% that historically characterized that relationship, though still below the peak of nearly 50% reached at one point.
“The price of slaughter cattle fell and a different feeder cattle value is needed for the business to add up,” Storni described. Feedlot operators' calculations indicate that if cattle is sold at 5,000 pesos per kilo, a purchase about 10% higher, around 5,500 pesos, can be validated, but they are paying almost 10% above that purchasing capacity that would make the business viable.
The association's November report also showed negative figures for fattening: a gross margin loss of 60,853 pesos per head before interest and taxes, which deepens to 136,233 pesos once the financial cost is included.
Faced with this situation, producing more kilos appears to be one of the few tools available to feeders. “The only tool is to dilute costs by producing more kilos. After that it depends on each company whether it does it all in the pen or how,” Storni noted.
The challenge is that the strategy does not necessarily make it possible to anticipate how the market will behave. “There is a lot on feed and little is going out. It is hard to know how supply will evolve, because what is on feed is heavy cattle. Maybe at some point there will be a shortage for domestic consumption,” Storni warned.
With plenty of cattle on feed, heavier outflows and a slaughter volume that has been retreating, feedlots face an unusual situation. The cattle that stayed in the pens during the months of highest outflows could end up supplying a different kind of demand, with heavier animals and a growing share of exports.
