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    Argentina

    Eyes On Argentina

    By Clint Peck Contributing Editor

    Jul 1, 2007 12:00 PM


    Cactus Argentina has all the look and feel of a Texas Panhandle feedyard. After all, Cactus Feeders of Amarillo, TX, has worked since 1999 to introduce Texas-style grain finishing to South America.


    The feedlot located near Villa Mercedes on the northwestern edge of Argentina's Pampas region was the vision of Miguel De Achaval, vice president and general manager of Cactus Argentina. The former Cactus Texas employee has built the feedyard to a one-time capacity of 25,000 head.

    Earlier this year, he oversaw the Cactus operation — with the help of Argentine agricultural conglomerate Cresud — take on a new look with the announcement of a joint venture with Tyson Foods of Springdale, AR.

    The cattle-feeding venture was topped off when the trio immediately added an existing slaughter and processing plant to its portfolio. The aim is to create the first fully vertically integrated beef operation in Argentina with capital stock as 24% Cactus Feeders, 24% Cresud and 52% Tyson.

    The new company expects to produce beef products for the domestic Argentine consumer — and give Tyson access to high-value European beef markets. The plant is located 275 miles south at Santa Rosa, La Pampa. It will be Tyson's first participation in a beef operation outside of North America.

    Developing a vertically integrated partnership has been one of Cactus' ultimate objectives in Argentina.

    “We believe a vertically integrated system for finishing cattle and processing beef in Argentina is the perfect way to capitalize on the strengths of the country's beef industry,” De Achaval says. “The commitment of this venture is to work with Argentine beef producers to offer a superior product at an affordable price.”

    The export-certified Santa Rosa facility presently has the capacity to slaughter and process about 9,500 head/month. Tyson spokesman Gary Mickelson says the newly formed company expects to expand the plant's capacity to 15,000 head/month in the future.

    “As part of the joint venture, much of the plant's production gradually will be converted from grass-fed to grain-fed beef, with cattle coming from the Villa Mercedes feedlot,” Mickelson says. “This grain-fed product will provide increased access to important export markets in Asia, as well as the European Union (EU).”

    Back at the feedyard


    Today, the pens at Cactus Argentina are filled with a mix of company-owned and customer cattle showing a predominance of British breeding, led by black and red Angus and Hereford. Managers buy a significant amount of locally raised feeders for both the company and feedyard customers, mostly through a network of order buyers.

    The customer base of the feedlot has been changing of late, spurred by drought; and more recently, government food price control policies (see sidebar). Animal ownership is evolving away from independent cow-calf and stocker producers to ownership by meatpacking companies and other large firms.

    “About 60% of the cattle in the feedyard are owned by third parties,” says Roberto Eizmendi, Cactus Argentina feedyard operations manager. “Of the beef produced from third party-owned cattle, about 70% is exported to the EU.”

    Eizmendi says there's even growing interest from large supermarket chains that are seeking to own and feed cattle, and retain ownership of the beef through slaughter and processing.

    Like your typical High Plains feedyard, the Cactus Argentina feed base is corn; pricing of which is a risky proposition anywhere these days, Eizmendi says.

    But in a twist of government policies, last year's average corn costs were higher than today's average costs. It's all tied to the Argentine government's complicated scheme to keep domestic beef prices in check.

    “Now, our cost for corn is going down,” Eizmendi says. “The government is compensating cattle feeders for the corn we feed to help keep feeding costs down so we can produce lower-cost beef for the consumer.” Under strict government oversight, the price-compensated corn can't be fed to animals producing beef for foreign markets.

    Despite the price for such inputs as feed grains, Cactus plans to build another feedyard modeled after the Villa Mercedes facility, but located closer to the Santa Rosa packing plant.

    “The idea is to grow in the country as Argentines continue to develop a taste for grain-fed beef,” Eizmendi concludes. “At this point, our competition is not other feedyards; our competition is the grass-finishing sector.”

    In other news


    Tyson isn't the only foreign meatpacker making news in Argentina. Brazilian-owned JBS SA Friboi, which slaughters about 22,600 head of cattle a day in its 21 plants across eight states in Brazil and five plants in Argentina under the Swift Armour name, added a sixth Argentine meatpacking firm to its portfolio. Friboi is the same company that recently announced the purchase of the Swift & Co. U.S. holdings.


    Argentina has all but fully recovered from the recurring foot-and-mouth disease (FMD) outbreaks of the past several years, says Ignacio Iriarte, editor of Argentine Cattle Report. The World Organization of Animal Health (OIE) recently agreed to restore “FMD-free with vaccination” status in Argentina except for a 15-km-wide strip along the northern borders with Bolivia, Paraguay and Brazil.

    The announcement paves the way for access to some of the world's strictest sanitary markets in North America, Japan and South Korea. For now, Argentine beef exports to North America are limited to thermally processed product.

    Argentine ranchers remain discouraged by very thin margins due to increased government intervention in the meat sector, Iriarte adds. “They say that if the government doesn't free the market or implement effective policies to encourage production and exports, beef output will begin to drop,” he says. “There are some indications that this process has already begun.”

    Two additional challenges discourage production. First, cattle continue to be pushed to the edges of the Pampas to new, less productive areas in the west and north of the country. Increased world prices favor a shift away from grazing toward grain and oilseed production.


    Second, the strong price increase of corn, which doubled in the past 15 months, directly affects cost of beef production for ranchers. Most Argentine cattle are finished in “hybridized” pasture/grain finishing systems. Iriarte says the corn price compensation program isn't aimed toward ranchers.

    “So far, this program isn't for use at the ranch level, and even many smaller feedlot companies won't subscribe to the program, as they must register with the government,” he says. “Our ranchers don't trust our government very much; it's not a good situation.”

    Contributing Editor Clint Peck traveled to South America as part of a beef study tour sponsored by the Livestock Marketing Information Center.

    Economic controls run amok


    For more than 100 years, the Liniers Market on the outskirts of Buenos Aires has been the center of price discovery for Argentina's country cattle industry. But lately the Liniers pens are all but empty as ranchers shy away from public auctions — avoiding the prying eyes of government observers bent on enforcing policies aimed at capping domestic cattle prices.

    The price of beef hits close to home for Argentines who eat about 150 lbs./year, half again more than the average American. Thus, beef prices have a strong influence on the consumer price index, and maintaining a relatively low and controlled inflation is one of the government's most important goals.

    But it's widely recognized that the price-control policies are less than altruistic. President Nestor Kirchner is in a dogfight for re-election in October. His strategy has been to stave off inflation by controlling consumer prices.

    “These aren't economics-based policies,” says Ken Joseph, USDA Foreign Agricultural Service marketing specialist stationed in Buenos Aires. “Next year, these policies will produce the problem of scarcities, but this government isn't listening to anybody right now.”

    So, farmers and cattle traders are looking for every avenue to route their cattle to market — including selling directly to processors who are very adept at “creative” procurement methods.

    “There are ‘white’ markets like Liniers and then there are the ‘black’ markets,” Joseph says. “Producers aren't going to willingly lose money — so you know how most of the cattle are being traded today.”

    Capping prices paid for cattle at public markets is only one of a list of government policies aimed at the beef industry. Last March, Kirchner banned all beef exports to prevent soaring international demand from pushing beef prices up. The restrictions were progressively eased and now exports are limited to about 70% of 2006 levels.

    Argentina's federal government is subsidizing corn feed for participating feedlots in a bid to keep domestic prices of beef and pork products stable.

    The government is encouraging the production of heavier fed steers and heifers at feedlots by mandating minimum slaughter weights. In addition, a list of “reference prices” for 12 of the more popular (and expensive) beef cuts has been established to which both wholesale and retail vendors must abide.

    But a trip through supermarkets in Buenos Aires tells another story. Some store chains and even independent meat markets report shortages of some beef cuts, blaming a lack of supply at the prices “suggested” by government price controllers.

    Beef prices aren't the only target. The government also has limited exports of wheat, wheat flour and corn. Despite the price controls, inflation hit 9.8% nationwide last year, the Western Hemisphere's second-highest rate.

    #2
    And what was really interesting was the "coincidence", that within days of Tyson/Cactus Feeders announcing their new partnership in Argentina- USDA announced their proposal to change the rules for importing from regions of Argentina....

    The pending change – published in the Jan. 5, 2007, Federal Register – would declare a portion of Argentina known as the Patagonia South region, free of rinderpest and foot-and-mouth disease (FMD).

    This just happens to be the area Tyson/Cactus Feeders is operating in and would open up North America for the importation of Argentine beef (along with a big increase in the danger of bringing FMD )...

    This rule change was missed by many producers, since the comment period was the same time as the Canadian Rule 2- and like Rule 2, USDA has not issued a final ruling....

    Comment


      #3
      And a good reason Oltimer, for producers in all of North America to not only support COOL in America, but Canadian COOL. And support every cattle industry player who stays away from the power and hunger of the Beef Trust. Lots of choices in America and a growing number in Canada. Whether it be Bern Kotelko's Spring Creek, Natural Valley, or Prarie Heratige Beef in Canada of one the even more programs in the states. This is where we need to focus our efforts since Canada is well on it's way to becoming an importing nation just like the good old USA, and our producers will need these "competitors" to survive and thrive.

      Comment


        #4
        I agree kaiser-- and now is the time for Canadian producers to demand an M-COOL law in Canada- or end up the dumping spot for the Tyson Argentine and Swift/JBS Brazilian beef as soon as they can get North America opened to that...

        And I believe that will be sooner than later- because they need to get the rules changed and borders opened while they still have their flunkies (USDA/Bush Boys) in office...They can't chance the changes that could come to be in the 08 election with much of the nation moving toward a much more protectionist/anti-Globalist, USA first belief.....

        Just like with the immigration bill the M-COOL bill shows how the masses can again override the Corporate lobbyists....Politicians don't want go against 80-90% polls...

        Lou Dobbs has a very good article about the change in thinking in the US population- and the change that the politicians may have to make to keep in office...

        http://www.cnn.com/2007/US/07/10/Dobbs.July11/index.html

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