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Cattle slaughter of premium beef exporter Uruguay to hit a 17-year low

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Cattle slaughter in Uruguay, a key producer that’s become known for its traceable grass-fed, hormone-free beef, could fall to the lowest in 17 years amid a shrinking herd and a drop in exports.

That’s according to Eduardo Urgal, director at Ontilcor SA, the country’s No 6 meatpacking plant by slaughter. Meat plants are suffering a shortfall of cattle as government data shows that ranchers shipped more than 500,000 animals to Middle Eastern abattoirs in recent years, he said. The herd has also shrunk after years of steady slaughter rates to meet China’s insatiable demand for beef.

“With a little luck we’ll slaughter 1.9 million head, which is 15 per cent less than last year,” Mr Urgal said.

That will aggravate overcapacity in an industry that can process about 3 million head a year. Packers need to produce more meat or risk being sidelined in the US and Asia, where some buyers demand volumes that the nation can’t easily provide, Mr Urgal said.

“Uruguay continues to have restrictions in accessing certain clients, above all in the US, because it doesn’t have the volume,” he said.

Still, slaughter could rebound next year and in 2022, reaching about 2.3 million, as a good calving season helps ranchers add as many as 400,000 animals to the herd this year alone, he said.

That could help the meatpacking industry approach breakeven for earnings before some items next year, said Mr Urgal, who thinks the sector’s negative Ebitda could double to as much as US$70 million in 2020.

After peaking at almost 12 million head in 2016, Uruguay’s herd fell to an eight-year low of just under 11.2 million animals last year due largely to the live cattle trade.

A recent study that pegged the beef industry’s potential output at 3.5 million calves and slaughter at 3 million head a year could be reached during the next decade if packers can sell more meat abroad, Mr Urgal said.

That means the industry needs trade agreements that open countries such as Malaysia to Uruguayan beef and lower tariffs in the U.S., Japan and South Korea, so packers can give ranchers the financial incentives to expand their herds, he said.

Beef was Uruguay’s top export by value at US$1.8 billion last year, but tariffs totaled US$205 million, according to government data. In addition to tariff barriers, packers pay 30 per cent-35 per cent more for cattle than competitors in Argentina and Brazil, Mr Urgal said.

“This isn’t sustainable to the degree that Uruguay can’t generate better sales,” he said. “To improve revenues, we need better trade agreements.”

China Laggard

Uruguay’s beef exports in the first seven months of the year fell 18 per cent to 226,535 metric tons as a 36 per cent plunge in sales to China more than offset higher shipments to the US, Canada and Russia, according to national meat agency Inac. Meanwhile, Argentina and Brazil have enjoyed double-digit gains in beef shipments to the Asian superpower.

Uruguay can’t compete with its lower cost South American neighbors in the market for cheap cuts that dominate the China meat trade, while the pandemic has hurt restaurant demand for premium beef, Mr Urgal said.

Chinese buyers make spot market purchases in Uruguay, he said.

“None of them take long positions.”

Source: BLOOMBERG

Note: A major live exporter of cattle to China, New Zealand has had its socialist leftwing Government ban live exports which are a 250 million-plus industry there on the basis of animal welfare concerns.

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