The Impact of Oversupply on Real Cattle Prices: A Look into the Current Situation

As long as this oversupply of beef continues, it is difficult to expect a significant recovery in real prices. The nominal values ​​of the farm are not enough to keep up with inflation and fall month by month in real terms.

The most dynamic factor in the formation of prices, exports, which was mainly responsible for the high values ​​of cattle last year, today is experiencing a fall in FOB China prices (-38% in one year) and an obvious exchange rate delay.

Consumption is absorbing 50 kilos (annual equivalent), but at the very low current values ​​at the counter, far behind inflation. (Pedro Castillo / The Voice)

Currently, there is an abundance of supply of steers and cows, but the exporter knows that this will last two or three more months, to then give rise to a process of scarcity and retention. Consumption is absorbing 50 kilos (annual equivalent), but at the very low current values ​​at the counter, far behind inflation.

A partial recovery in real cattle prices can be expected from August-September, when the current oversupply of fat cattle begins to abate, and the recovery of the fields stimulates the demand for calves from grazing winterers.

There will be less slaughter of cows and steers, and the oversupply of steers and heifers that today come from the corrals will begin to subside.

A partial recovery in real cattle prices can be expected from August-September, when the current oversupply of fat cattle begins to abate. (Tomy Fragueiro/File)

But all in a difficult economic context, with high inflation, uncertainty, a drop in economic activity, and many relative prices in the economy seeking to recover in real terms: rates, expenses, schools, prepaid, rental clubs, insurance, among others. The price of the farm is not the only one behind.

We will see if with the change in relative prices that is coming in the coming months –dollar included–, the shortage of cattle will prevail over the negative effects that would be registered in the short term.

When the dust clears and there is some economic certainty and the fields return to their usual receptivity, we will probably see a rapid recovery of the livestock stock, a lower supply of meat, greater exports and internal consumption falling a new notch, to the 43-44 kg per capita.

Prices

Is there a seasonality of farm prices? If we take the price of the steer for the period 2005-2022, we will see that with respect to an index January-December = 100, the prices of the steer in Liniers-MAG at constant currency reach a maximum in March-April, with an index of 105, 5, to fall in the following months until reaching a floor in September-October, with an index of 95.5, that is, some 10 percentage points below the maximum of March-April.

Consumption is absorbing 50 kilos (annual equivalent), but at the very low current values ​​at the counter, far behind inflation. (Pedro Castillo / The Voice)

During the year 2022, the fall in real steer prices, after having reached its seasonal peak in April, with around $770 today per live kilo, was very abrupt, reaching $482 in December and registering a drop in real terms of 38% in eight months. The long-awaited jump in cattle prices from November last year did not occur.

It should be noted that this year the peak of real steer prices was brought forward to the month of February, with today’s $670 per live kilo, so that the accumulated real value drop since then is already 26%, and there are several months to go before reach a “bounce zone”. The rate of decline in real farm prices, given current inflation, is much faster than at any other time in the last 20 years.

2023-07-09 03:00:00
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