Meat became cheaper due to the livestock cycle, not Lula and PT

The Brazilian market is experiencing a period of falling beef prices due to a phenomenon known by technicians as the livestock cycle. The greater supply of beef cattle, which Lula and the PT trumpet as a “fulfilled campaign promise”, has no relation to the actions of the current government. This is mainly, among other reasons, the result of the expansion of herds carried out by ranchers two or three years ago, when meat prices were on the rise and a new PT administration was still just a remote hypothesis.

The current cycle of increased supply coincides with a reduction in prices paid for Chinese cattle (a younger animal) and with cheaper corn due to the historic harvest of 130 million tons. Receiving less per arroba, breeders fear going into the red and end up getting rid of matrices (females), which results in even more meat being released onto the market.

Different projections from IBGE, Santander Brasil bank and LCA Consultores indicate that 2023 should close with deflation in meat prices between 10% and 11.35%. It would be the biggest drop since the beginning of the Real Plan, in 1994. A trend of changing the livestock cycle that the PT members soon tried to relate to Lula’s campaign promises, who, in August 2022, in an interview with Jornal Nacional, stated: “People have to go back to eating a barbecue, eating a picanha and drinking a beer.”

PT members try to capitalize on market fluctuations

Faced with the deflation of animal protein, the PT website reproduces a tweet from the minister of the Social Communication Secretariat of the Presidency of the Republic, Paulo Pimenta: “Lula promised and fulfilled (…) Prepare the fire that the price of meat has plummeted and will fall more!” Another who sought to cash in on steak prices was deputy Rogério Correia (PT-MG), who also posted: “Remember during the campaign when Lula said that the price of meat would fall? Well, he fulfilled his promise.”

The PT members, thus, try to make money on what they did not build, and did not even contribute to the result. “It was their great luck, they caught the government with this “picanha” speech and with the livestock cycle adjusting downwards. It would be speculation to say that Lula was aware of the livestock cycle, I think it was a populist speech (about cheaper meat), of promising without measuring any consequences”, assesses Lygia Pimentel, chief analyst at the consultancy Agrifatto (SP). Lygia, who is an economist and veterinarian, remembers that the same rhetoric was used by President Alberto Fernandez, in Argentina, who promised to lower the price of meat, but failed because the livestock cycle there was on a bias towards rising prices.

The reduction in the price of meat this year in Brazil is insufficient to bring prices to pre-2019 levels. In that year alone, meat increased by 32.4%, putting pressure on the inflation index measured by the IPCA. Then, during the pandemic, pressure on production costs led to an accumulated increase of 42.6%, between March 2020 and April 2021, double the general inflation in the period, according to the Institute of Applied Economic Research (Ipea) .

Calf inseminated in 2021 is now appearing

To understand the current livestock cycle, you also need to look in the rearview mirror. In 2018 and 2019 there was a high rate of sow slaughter in the country. As a result, the supply of cattle decreased and the price rose. The arrival of the pandemic increased production costs and caused prices to soar. “Producers then began to invest more in insemination, technology, nutrition and health. 2021 was the year that we inseminated the most. It is the calf that is appearing now, in 2023. Now is the cycle of more supply, because, with prices smaller, producers are also slaughtering more females”, explains Thiago Bernardino, technical coordinator of the livestock area at the Center for Advanced Studies in Applied Economics (Cepea-Esalq/USP).

In the Brazilian reality, where there is still a significant portion of livestock farmers who are not very professional, the price swing linked to livestock cycles is intense. Currently, according to Agrifatto, the price of cattle has fallen by around 30% from its peak in 2022. With their income compromised, the less efficient breeder feels discouraged. “Furthermore, he is unable to invest, and often needs to liquidate his herd to make cash. So he is discouraged, he thinks that the situation will never change, that livestock farming no longer makes money. And as he needs to pay the bills, he liquidates the herd. And down the road we will feel the opposite effect of this disinvestment phase. This all has long-term consequences”, argues Lygia Pimentel.

If meat was one of the items that weighed most on food inflation during the pandemic period, now, with an increase in supply, the livestock cycle has entered a downward trend and the trend is reversed. “There are good chances of ending inflation below the target, below the ceiling of 4.75%. When we look for the reasons, we see that the foods had this atypical behavior. They returned part of the increase they had in recent years and meat, in fact all animal proteins, played an important role in slowing inflation”, highlights André Braz, coordinator of Price Indices at the Brazilian Institute of Economics, at Fundação Getúlio Vargas ( FGV Ibre).

Meat will be a “little girl” for inflation this year

The retraction in recent months in the prices of commodities such as corn and soybeans, basic ingredients for cattle, chicken and pig feed, would also have contributed to the production chain not being pressured to pass on costs. “Expecting the price of meat to return to 2019 levels is not realistic. Yes, there is still a fat price in the period in which it rose a lot, so, by current standards, it is actually cheaper. She will be the good girl of inflation this year, she will not be the villain”, says Braz.

Changes in scenario, depending on the livestock cycle, take years to occur. The attempt by PT members to capitalize on the decline in meat prices is therefore opportunistic. “The ox being slaughtered today was born 30 or 36 months ago. It is not possible to increase beef production in Brazil in ten months, unless the government had limited exports, but that was not the case”, argues Pimentel, from Agrifatto. And when governments try to intervene in exports, as occurred in Argentina, where the Peronist regime banned shipments of certain cuts, the effect was even worse, as it discouraged breeders from investing in the activity, leading to a decline in volumes produced.

The projection by consultancy Agrifatto is that the current livestock cycle, of excess supply, will continue next year, starting to change its sign between 2025 and 2026. “You have to accumulate females producing to achieve an effect, or you have to collectively and persistently liquidate these females to have an effect. It has to be a continuous thing, slaughtering females in 2022, 2023, 2024 and suddenly there are a lot of cattle missing, because it was a cumulative thing. We had a boom in the livestock cycle in 2020 and 2022. We should only have a similar effect in 2026”, says Lygia Pimentel.

Red meat is in close competition with chicken and pork

In the competition for consumer preference with other meats, beef has the disadvantage of traditionally being the most expensive. The abundance of corn this year, notes Thiago Bernardino, from Cepea, made pork and chicken production cheaper, intensifying competition in the domestic market and increasing pressure on beef.

On the other hand, the turbulent global economic scenario, with higher inflation and interest rates, also contributed to lowering the price of meat in Brazil. Bernardino notes that China has reduced the amounts paid for the arroba since July-August of last year. “They made a price adjustment, basically due to the international crisis. The country has also not been growing as it was in recent years, but continues to depend on meat consumption”, he highlights.

Ironically, the same PT government that is now celebrating the drop in meat prices, without having contributed to it, could face an opposite situation in 2026, the presidential election year: more expensive steak, pressured by the rising livestock cycle. If this is confirmed, the “picanha” issue, celebrated now, could become a thorn in the side of the PT electoral campaign.