Brazilian beef production will grow rapidly over the next 10 years as the use of feedlots becomes more common, Rabobank said in a research report.
Capacity at lots will double to 9 million head of cattle a year in response to surging global demand, it said.
"We believe Brazil's beef industry is on the verge of a transformational shift towards rapid intensification, which will help meet growing global demand," said the report.
Brazil is already the world's No. 2 beef producer and the largest exporter, but remains inefficient by global standards, with below-average productivity.
Currently, the overwhelming majority of Brazilian cattle are reared by low-intensity pasture-based farm operations. Brazil produced 9.6 million metric tons (mmt) of beef in 2013, of which only 900,000 metric tons was produced using feedlots. But by 2023, feedlots will become more important, accounting for 2.5 mmt of the projected 13.1 mmt output in 2023, said Rabobank.
A lot of that extra beef will be exported to developing countries as their populations switch to ever-more protein-rich diets.
But while demand is a driver for expansion into feedlots, the main factor is the growth of Brazil's grain industry, which will provide huge quantities of inexpensive feed for cattle.
Brazilian grain production has nearly doubled over the last 10 years and is set to grow another 30% in the next 10, with corn -- the main cattle feed -- representing a large portion of that expansion due to the spread of double-cropping corn with soybeans, said the report.
But, as Rabobank points out, logistics hasn't kept pace with the growth in output. As a result, soybean-shipping costs from Mato Grosso are five times those from Minnesota. With new production being developed even further from port, logistical challenges will remain over the next decade. That translates to heavily discounted grains, especially corn, in Brazil's vast interior and therefore a great opportunity for feedlots.
Over the last decade, Brazilian beef production has grown onto abundant grazing land for calf and grass-fed beef production. But there are limitations on the further expansion of this model, namely environmental pressures and fierce competition for agricultural land from grain crops, said the report.
These pressures will naturally push ranchers toward intensified production, leading to a 10% per annum growth rate in feedlot production over the next decade, said Rabobank.
The transition will require investments of up to $500 million.
There will also be an impact for grain farmers with 12 million acres of pasture becoming freed up for grain production and extra demand for 4.4 mmt of corn and 0.6 mmt of soymeal from the new feedlots by 2023.
Brazil's beef herd is already being adapted to feedlots, with dual-purpose animals that perform well in tropical conditions but have enhanced feedlot performance, becoming more prevalent. Sales of Angus semen are already higher than Nellore semen and the balance will move further toward the former, said Rabobank.
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