How the livestock cycle that regulates the price of meat works

The reduction in meat prices in the Brazilian market this year, of around 10% for consumers and 30% for livestock farmers, will not be enough to offset the accumulated increases since 2019. That year alone, the increase was 32.4 % in IPCA. However, the fact that prices fell was quickly celebrated by ministers of Luiz Inácio Lula da Silva’s government and by the PT as “fulfillment of campaign promises”.

The first half of 2023 was the one in which the country produced the most beef in history, 4.04 million tons according to IBGE. Report from People’s Gazette has already demonstrated that, technically, it is impossible for the current government to have contributed to the greater supply of fat cattle, since the animal that is currently being slaughtered was born three years ago, when a Lula 3 government had not yet even appeared on the radar.

Much of the explanation for the decline in prices, which is still felt more in the countryside than on supermarket shelves, lies in the so-called livestock cycle. Basically, it is a feedback phenomenon that occurs in the prices of cattle, which sometimes stimulates and sometimes discourages breeders from producing, creating a seesaw effect. Law of supply and demand.

Slaughter of females marks peak in supply, before shortage

At the moment, the livestock cycle in Brazil is booming. With more fat cattle offered, there is a general drop in prices, including those for calves and matrices. To balance the books, breeders get rid of breeders, forcing prices down even further. This signals that in 2025 a change in the cycle may begin, because the reduction in matrices (females) will compromise the production of calves and the replacement of slaughtered cattle. When the herd decreases, there will be pressure to increase prices, which will encourage breeders to look for matrices and calves, resulting in a new increase in supply in the medium term. And so the cycle will begin again, with a drop in prices and the slaughter of females due to the financial difficulties of breeders.

“It all has to do with the livestock cycle. We are reaping the effects of the investments made back then. The ox being slaughtered today was born 30 or 36 months ago”, highlights Lygia Pimentel, from Agrifatto. The increase in the slaughter of females is already a sign, she says, that there will be a new cycle of increase later on.

“The price of live cattle for producers has fallen by around 30% since 2022. This compromises the producer’s income, he is discouraged from investing and often needs to liquidate the herd to make cash. Up front, we will feel the opposite effect of this disinvestment phase. Everything has long-term consequences. There’s no point in trying to invent this story that the government did something in ten months”, he emphasizes. The livestock cycle takes several years because it is necessary to “liquidate females” continuously to create a shortage of fat cattle and, in the same way, “accumulate females” sequentially to increase supply.

Liquidation phase, stock replenishment phase

“Historically, there are three seasons of increased slaughter of females to have a positive-negative response, that is, to produce less. When I am in the liquidation phase, I slaughter males, I slaughter discards and I slaughter a lot of females. So, there is an additional offer. And we estimate that this additional offer will still be available next year. In 2022 it increased a little, in 2023 it increased a lot. I think 2024 will drop a little, but it should still be historically high. And then in 2025 the price starts to rise. In 2026 it will rise a lot, there will be an explosion. This is what we are visualizing”, predicts Lygia Pimentel.

Thiago Bernardino, technical coordinator of the livestock sector at the Center for Advanced Studies in Applied Economics (Cepea-Esalq/USP), confirms that the country is experiencing the peak of the high livestock cycle. “The year 2021 was the year we inseminated the most. It is the calf that is appearing now, in 2023. And then, that year, we slaughter more females again. We are in a cycle of more supply also because, with lower prices, we are slaughtering more females. Again, it is the reversal of the cycle that will impact me in 2025 and 2026”, he highlights.