Brazil’s cattle prices have recently been surging, reaching $1.64/pound in Sao Paulo. This is up 10 percent from a year ago and the highest since September 2011 in U.S. dollar terms. While prices are still 15 percent below their March 2011 peak, the weaker Brazilian real accounts for the difference between current prices and those from 2011. So based on domestic currency, cattle prices are at record levels. This trend has been driven by several factors, including record export volumes, steady domestic demand (with anticipated growth due to the World Cup in June and presidential elections in October) and drought.

During Brazil’s most recent rainy season (December 2013 through February 2014), moisture shortages meant less grass, lighter carcass weights and reduced supplies of finished cattle available for slaughter. If Brazil does not get significant rain before its dry season begins, 2014 could be a challenging year for beef production. And this comes at a time of tight supplies in North America and continued drought-induced herd liquidation in Australia. With growing global demand, Brazil is still expected to export record volumes of beef this year – possibly exporting 22 to 25 percent of its total production, according to estimates from Brazil’s Beef Point analysts.

Brazil was the world’s largest exporter of beef/beef variety meat last year, shipping 1.4 million mt valued at $6.34 billion. Brazil is also the world’s second-largest producer and consumer of beef, following the United States (the European Union ranks third). The latest estimates from USDA/FAS put Brazil’s 2013 beef production at 9.675 million mt, with 2014 expected to reach 9.92 million mt. This compares to U.S. production of 11.7 million mt and a 2014 estimate of 11.17 million mt. Brazil’s cattle inventory exceeds 200 million head (compared to 87.7 million in the U.S.) and 2013 slaughter was estimated at 41.59 million head (U.S. was 31.8 million). So growth in Brazil’s beef production has been, and will continue to be, driven by productivity gains that generate more beef per animal.

Brazil’s cattle industry underwent herd liquidation in 2006-2007, and its exports also peaked during that time. Herd rebuilding has been underway ever since, and translated into larger production and exports last year. Brazil’s industry has benefited from strong and growing domestic beef demand, with per capita consumption exceeding that of the U.S. in 2010 (now more than 40 kg/capita, carcass weight equivalent). Exports account for roughly 18 percent of Brazil’s production and surged in 2013, aided by the weaker real and consumption growth in areas where domestic production cannot meet demand – such as Hong Kong, the Middle East, Russia, Venezuela and Africa.

Brazil’s export growth trend has continued in 2014. Through February, beef/beef variety meat exports were up 28 percent from a year ago to 259,056 mt, including a surge to Iran (26,096 mt, +802 percent and the largest since 2010) and strong growth to Egypt (30,563 mt, +126 percent). Exports to leading market Hong Kong (54,388 mt, +24 percent) and Venezuela (26,656 mt, +20 percent) were also sharply higher. Russia is still Brazil’s No. 2 destination behind Hong Kong, but exports to Russia were down 5 percent to 48,356 mt.

Chilled beef accounted for 9 percent of Brazil’s total January-February export volume. Chilled exports totaled 23,041 mt, up 11 percent from a year ago. Chilled volumes were lower for main destination Chile (10,398 mt, -4 percent) but larger for the EU (3,829 mt, +22 percent), Algeria (2,641 mt, +27 percent), Lebanon (1,974 mt, +38 percent), Jordan (1,155 mt, +6 percent) and the United Arab Emirates (1,098 mt, +97 percent).

Sources: Beef Point, Global Trade Atlas, USDA/FAS and the Brazilian Center for Advanced Studies on Applied Economic (CEPEA)