“…consequence of the reduction in Brazilian beef consumption was the change in the production chain’s focus to new customers, mainly international ones, to reduce dependence on the domestic market…”
Yago Travagini Ferreira is Head of livestock at Agrifatto and responsible for analysis and customer service. Travagini is an economist graduated from the Federal University of Mato Grosso State, focused on agribusiness market analysis and specialized in cattle for beef production. He was professor of agricultural derivatives at the Saint Paul Business School.
AgriBrasilis – What is Agrifatto’s role and what are its objectives?
Yago Travagini – Agrifatto is an agricultural asset analysis house focused on market risk management. Our main objective is to help the farmers to manage their risks at the time of commercialization.
AgriBrasilis – Beef consumption is at one of the lowest levels ever recorded. What factors led to this drop? What are the consequences in the production chain and what is expected for the short and medium term?
Yago Travagini – The main motivation for the reduction of domestic consumption of beef in Brazil was the loss of Brazilian purchasing power.
Between 2015 and 2021, Brazil’s per capita GDP decreased and with that, Brazilians saw their purchasing power sharply reduce, causing them to migrate their consumption of beef protein to proteins of lower value. The consequence of the reduction in Brazilian consumption was the change in the producing chain’s focus to new customers, mainly international ones, in order to reduce dependence on the domestic market and to be able to advance in productivity even in the face of a population with lower purchasing power. One of these customers is China.
For the short and medium term, a resumption of domestic consumption is expected, as GDP indicators show an improvement in the short term, as well as other indicators such as unemployment and average worker income.
AgriBrasilis – What is the outlook for Brazilian beef exports? How has Chinese demand been behaving?
Yago Travagini – Brazilian beef exports should close 2022 with a record and 2023 also has good prospects. The Chinese have been the world’s leading beef importers and are also expected to end 2022 with the highest volume imported in history.
It is worth noting that in recent weeks, with growing concern about a recession in the Western world and the devaluation of the Yuan, the Chinese have strongly reduced the prices paid for Brazilian beef protein.
AgriBrasilis – What are the different phases of the livestock cycle? How can problems in the different production phases affect the rest of the chain?
Yago Travagini – There are three phases in the livestock cycle: retention, transition and disposal, which basically concerns to what ranchers are doing with their female animals. In the retention phase, ranchers are retaining their females as prices in the livestock sector are generally good. They retain females in order to produce more.
In the culling phase, with prices falling, ranchers tend to send more females to the slaughter line to “close the accounts” and do this by slaughtering above average females.
The transition phase is the one we are in now, where we come out of an intense retention in 2021 and are heading towards a discard of female animals in 2023.
AgriBrasilis – You said in 2021 that one of the lessons for the year was the importance of using price risk management tools. Why are these tools important? What are the lessons for 2022?
Yago Travagini – Price risk management tools are important to reduce the risk that ranchers have when selling their animals. The rancher who did not sell his animals in 2022 was much less exposed to the high variations that the price of live cattle had during that year. In other words, those who used risk management tools suffered less from the high volatility of the market.
AgriBrasilis – What does it mean to say that the increase in live-cattle prices depends on the shortening of slaughter scales and the reduction of inventories?
Yago Travagini – It means that prices can only really improve if we start to see a decrease in the amount of cattle offered to slaughterhouses. With less supply, there is more competition for animals. With the bigger competition, the tendency is for prices to rise because the slaughterhouses need to generate raw material to supply their stocks.
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