Argentina’s Crisis Is Great for Steak But Bad for Ranchers

Bloomberg – Juan Eiras was born into a family of ranchers. If not for that, he says, the 55-year-old would have quit the business in 2018, the worst year for raising cattle on Argentina’s famed Pampas plains in almost a decade. Now he’s worried about how he’s going to make it through 2019.

For many of Argentina’s cattlemen, the pain of last year’s currency crisis endures. With the benchmark interest rate sitting at 56 percent—the world’s highest—Eiras and others are pretty much cut off from credit. At the same time, feed costs have soared, pushed up by inflation that’s running at 48 percent.

That’s forced farmers to sell off some of their cattle just so they can feed the rest, flooding the market with cheap beef. Meanwhile, meatpackers, such as Brazil’s Minerva SA, are making a killing because beef exports are denominated in dollars. Shipments abroad rose 77 percent through November, to 501,000 metric tons, their highest in nine years.

“Exporters are profiting at the cost of ranchers,” says Eiras, who runs a feedlot in Brandsen, a town in Buenos Aires province. In Argentina, most beef cattle are raised on grasslands but fattened on grain before they’re slaughtered. The price of corn feed has doubled over the past year, so many farmers are sending fewer cows to feedlots or shortening the time they spend there. “Our lives are rooted in ranching,” says Eiras, whose operation is running at 40 percent capacity. “If it weren’t for that, we’d have sold out in August.”

Francis Macadam’s ancestors were ranchers who came to Argentina from Britain after World War I. Macadam, 63, has kept the family business in Santa Fe province going, but now he’s mulling slashing the 1,500-strong herd by a third. “We’re bleeding,” he says. “There may come a time when traditions go out of the window. You can’t keep losing money forever.”

Farmers have reached the point where they’re dispatching more and more female cows to meatpackers, according to the Chamber of Beef Industry and Trade (CICCRA). In 2018 females accounted for 45.5 percent of cattle slaughtered, the most since 2009, when then-President Cristina Fernández de Kirchner sent the industry into a tailspin with price and export controls amid a severe drought.

Once the slaughter of female cows surpasses a certain threshold, the size of the overall herd can only decline. “I’m very worried,” says Miguel Schiariti, a rancher who heads CICCRA. “A perfect storm has gathered that could destroy the sector.”

Farmers had been on a wave of optimism after President Mauricio Macri took office in December 2015. Agriculture was central to Macri’s plan to revive the economy, and his administration quickly set to dismantling controls instituted by the populist Fernández de Kirchner.

Cattle numbers rebounded, and eventually so did beef shipments, returning Argentina to the No. 5 position among global exporters. But when investors began unloading Argentine securities last April because of concerns about the fiscal deficit, the peso plunged. The tide turned on Macri and ranchers were swept up in its wake. By yearend, the currency had lost half its value. Government-imposed austerity measures and the sky-high interest rates required to shore up the peso are weighing on the economy. Gross domestic product shrank an estimated 2.4 percent in 2018, and a further 0.5 percent contraction is expected this year.

The livestock industry’s problems have a silver lining for steak lovers. In Argentina, whose residents vie with those in neighboring Uruguay for the title of world’s biggest consumers of beef, prices have risen less than inflation overall.

Not all ranchers are ready to throw in the towel. In La Pampa province, Julio Reumann is thinking about expanding his 2,000-head herd by buying some calves on the cheap, betting that prices will firm up by the time the animals are ready for slaughter. “In Argentina, we live from crisis to crisis,” says the 47-year-old fourth-generation cattleman. “The only way to live here is by looking for opportunity.”