Feedlot and Beef Busines in Brazil

Fabio DiasExecutive Director, ASSOCON(Brazil’s Feedlots Association)

13o. Journée Bovine Provinciale

Le 1ier juin 2007

Where is Brazil ?

INTER TROPICS ZONE

What is the importance of this ? What means be a tropical country ?

Always Wet

Dry Winter

Short Dry Season

Semi Arid

Always Wet, Hot Sumer

Always Wet, Warn SumerHot, Hot Sumer, Dry Winter

Hot, Hot Sumer, Warn Winter

DRY

AVG TEMPS, WET AND SEMI-WET

HIGH TEMPS, WET AND SEMI-WET

Wet !Annual rainfall range from 600mm to 4000mm

Very Good Potential for modern agriculture

Source: IBGE e Conab, prepared by CNA./FNPPC

Amazon Forest 345

Pastures 220

Protected Areas 55

Annual Agriculture 46

Permanent Agriculture 16

Cities, Lakes, Rivers, Roads 20

Cultivated Forests 5

Subtotal 707

Others 38

Unused areas with potential for agriculture 106

Total 851

Brazil, a huge country.8,5 millions square kms

Millions of Hectares

Source: USDA, prepared by CAN/FNPPC.

Brazil – A Global Player in Agribusiness

Production Exports

Sugar 1º 1º 41%

Coffe 1º 1º 28%

Orange Juice 1º 1º 82%

Ethanol 2º 1º -

Tobacco (as 2005) 2º 1º 27%

Soy Complex 2º 1º 37%

Beef 2º 1º 27%

Poultry 2º 1º 39%

Corn 3º 3º 6%

Swine 3º 3º 11%

Product Global Trade Share

Brazil's Rank

6

In this 30 yrs the Brazilian agriculture incorporates 20% new areas and folds the production 2,5 times.

Source: IBGE, prepared by ASSOCON

8

What is the reason for the grains tour?

Soybean Corn% %

EUA (CBOT) 0,0% 0,0%Maringá -12,6% 10,9%Rondonópolis -29,0% -29,7%Sorriso -35,2% -45,3%

The freight effect on grain prices. The greatest advantage of Brazil Animal Feeders

Source: CBOT, S&M. Prepared by MB Agro

Itajai Port The main traditional route for agric products

- Non related to grains prices. - related to freight costs (oil).

Where is the production : Herd x Agriculture

Herd Distribution as 2004(204 million head)

Soybean Production as 2004(49.6 million tons)

Huge agriculture areas surrounded by great amounts of cattle.

Source: Maps prepared by MB Agro with data from IBGE.

Brazilian Beef Business

Source: IBGE, FNP, USDA, SECEX, prepared by ABIEC.

Herd (heads)Slaughter (heads/yr)ProductionPer Capita Consumption Domestic Total Cons.Exports

Packing PlantsPacking Plants

207 millions45 millions

9 millions T Eq. C.35,1 kg/yr

6,6 millionsT Eq. C.2,4 millions T Eq. C.

1500

19% world18% world16% world

13% world31% world

Brazil Total Slaughter (yr)

Abate Bovino Anual Brasil - Total de Cabeças

27,5428,56

29,3130,30

31,28

32,81 33,29

34,7935,78

40,28

42,60

44,77

20,00

25,00

30,00

35,00

40,00

45,00

50,00

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

In 12 years the Brazilian total slaughter goes from 27 to 44 million head per year. It means that Brazilian packing plants are killing an extra “Canada”every 3 years.

(assuming Canada kills 4,3 M hd / yr)

+ 62%

Source: Scot Consultoria

Production grows faster than the total herd

Slaughter (MM Head) Herd (MM Head) Turn Over

1995 27,54 161,23 17%

1996 28,56 158,29 18%

1997 29,31 161,42 18%

1998 30,30 163,15 19%

1999 31,28 164,62 19%

2000 32,81 169,88 19%

2001 33,29 176,39 19%

2002 34,79 185,35 19%

2003 35,78 195,55 18%

2004 40,28 202,00 20%

2005 43,10 202,70 21%

2006 44,40 204,70 22%

2006/1995 161% 127%

Source: Scot Consultoria / C N A

Huge amounts of cattle to feed

Globally competitive food costs

Feedlots in Brazil tends to be

highly competive in the main cost

itens

Feedlot Industry in BrazilDurable Competitive Advantage

Sanidade0%Alimentação

29%

Instalações e operações

7%Boi magro

64%

VeterinaryFeeding

Operating and

FacilitiesFeeding Cattle

Feedlot costs distribution in Brazil

Source: Scot Consultoria.

Brazil Feedlots 2o. Boom

15

The feedlots apeared in the 80s as a strategy to finish steers during the dry season and take advantage of price diferences between dry and wet periods.

Now the feedlots are growing very fast as a competitive tool to grow and finish animals due to the new highly competitive food costs.

The Top 50 Brazilian Feedlots folds 3 times in the last 5 yrs (23 % per yr).

Source : TOP50 Beefpoint 2006

Number of heads finished per year by the 50 biggest feedlots in Brazil.

All the central area of Brazil’s territory has well defined dry and wet seasons. The rains

distribution will delimitate when pasture based production is possible or not.

Understand the tropical rain system is mandatory. Climate is the driver.

Lotações durante o ano

0

2

4

6

8

Jan Fev Mar Abr Mai Jun Jul Ago Set Out Nov Dez

Lota

ção

(UA/h

a)

Irrigado

Sequeiro

Even when we use irrigation we do not have pasture all the year

suplement during the dry season is mandatory

0

100

200

300

400

500

600

0 200 400 600 800 1000Idade, dias

Peso

viv

o je

jum

, Kg

sem com total

Inverno

19/jun/79

09/out/79

Inverno

20/mai/80

04/nov/80

Suplementação pós-desmama e crescimentode machos ¾Zebu x ¼Pardo Suíço 1978

Nardon et al. (Não Publicado)

Effect of post weaning supplementary feed on the growth of Zebu x Brownvieh cross males

Brazilian Popular Strategies to Supplement Cattlduring the dry season

1. The basic strategy is use good and balanced Mineral Salt. (basically all herds use this strategy)(avg cons 50gr dm hd day, weight gains from .2 to .3 kg lw hd day)

2. A second option consists in delivery some protein supplement together with the min salt. This strategy need know-how involving cattle management in order to use the maximum potential of the grass. We estimate 6 million heads on this strategy. (avg cons from .5 to 1.5 kg dm hd day, gains from .4 to .6 kg lw hd day)

3. Finally we can go to the feedlot, giving all the animal need on the bulk. Estimate herd on feedlots is 2,3 million heds.(avg cons from 8 to 12 kg dm hd day, gains from 1.2 to 1.8 kg lw hd day)

Where are located the feedlots in Brazil(based on the Assocon Herd, as by April 2007. Assocon = 20% Brazil Feedlot)

State Quant Part Heads PartGO 12 24% 242201 47%SP 18 36% 78158 15%MT 8 16% 62500 12%MS 6 12% 95044 18%MG 3 6% 32000 6%PR 3 6% 7100 1%

50 517003

Source: Assocon

Our Feedlots and Main Packing Plants

MAIN EXPORT PACKING PLANTS

ASSOCON FEEDLOT MEMBERS

Source: Assocon

The ASSOCON typical feedlot

• Days on feed– 77 days (min 55, max 100)

• Distance– 121 km/plant (min 40, max 500)

• Performance– 1510 gr/day (min 1200, max 2000)

• Breed– Nelore, Nelore/Holstein and Nelore/Angus

crosses

Source: Assocon, 2006

• Nutrition– 60/40 con/vol ratio (min 40/60, max 80/20)– 100% vegetal feed sources

• Corn Silage, Sugar Cane Fiber, Sorgum Silage, Sugar Cane Fresh, Grass Silagem, Fresh Grass

• Cotton Seed, Corn, Sorgun, Citrus Pulp, Soya– NO hormones – NO animal sources for Fat or Protein

• Weight– Start 360 kg / finish 520 kg (live weight)– 275 kg carcass weight

The ASSOCON typical farm(based on 30 farms answers)

Source: Assocon, 2006

Brazil’s Total Finished Cattle on Feedlot (2006)

Total Heads 100% 2.300.000By Sex :

Females 5% 115.000

Males 95% 2.185.000

By State:Mato Grosso do Sul 20% 437.000

São Paulo 20% 437.000

Minas Gerais 8% 174.800

Goiás 40% 874.000

Mato Grosso 12% 262.200

Breakdown the Brazilian Slaughter Capacity

2006

Federal Inspected Units (Export/SIF) 24.494.196 55%

State and Local (Domestic) 20.275.804 45%

TOTAL 44.770.000 100%

Since Brazilian feedlots killed 2,3 million heads in 2006, we can conclude that Brazil’s Feedlot Industry provides 5% of total turn over of Brazil’s beef slaughter.

26

Total 2006 set/06 out/06 nov/06

Federal Inspected and Export (SIF) 24.494.196 2.084.457 2.162.383 1.986.720

SIF - Males – BRASIL 15.424.569 1.391.692 1.487.944 1.319.271

SIF – Males – Feedlot States 10.158.703 915.648 1.009.686 879.752

SIF - Males – GO (Goias) 1.731.934 163.496 189.325 160.183

SIF - Males – SP (Sao Paulo) 2.593.925 249.376 266.528 222.109

SIF - Males – MS (Mato Grosso Sul) 2.198.277 166.723 191.829 179.752

SIF - Males – MT (Mato Grosso) 2.546.464 237.767 260.762 224.935

SIF - Males – MG (Minas Gerais) 1.088.103 98.287 101.242 92.773

Breakdown the Slaughter by Sex and State

27

Participacao do Gado Confinado sobre o abate total de machos sob SIF

-10%

10%

30%

50%

70%

90%

110%

130%

150%

jan/mar abr mai jun jul ago set out nov dez

Mato Grosso do Sul

São Paulo

Minas Gerais

Goiás

Mato Grosso

The importance of feedlot finished cattle on the dry months (set/oct/nov) is very clear.

As an average 70% of dry season finished males are suported by feedlots in the 5 feedlot states (GO, SP, MG, MS, MT).

Feedlot Output Importance per State and MonthSIF / Export Packing Plants -2006

World Beef Industry

Global numbers and figures

Rebanho Bovino nos Países SelecionadosMilhões de Cabeças - 2006

282

205

142

97 8650

28 27 20 150

50

100

150

200

250

300

Índia

Brasil

China

EUA

UE-25Arge

ntina

Austrá

lia

México

Rússia

Canad

á

Source: USDA; *Brasil: Estimated by CNA

Bovine Total Herd (some selected countries, MM Heads, 2006)

PAÍS 2002 2003 2004 2005 2006* 2007** Var. (06/02)Estados Unidos 12.427 12.039 11.261 11.317 11.897 12.168 -4,26%

Brasil1 7.300 7.700 8.350 8.750 8.950 9.200 22,60%

União Européia2 8.145 8.061 8.007 7.770 7.880 7.880 -3,25%

China 5.846 6.305 6.759 7.115 7.500 7.910 28,29%

Argentina 2.700 2.800 3.130 3.200 3.100 3.150 14,81%

Índia3 1.810 1.960 2.130 2.250 2.375 2.500 31,22%

México 1.930 1.950 2.099 2.125 2.175 2.200 12,69%

Austrália 2.089 2.073 2.081 2.102 2.150 2.290 2,92%

Rússia 1.740 1.670 1.590 1.525 1.460 1.380 -16,09%

Canadá 1.294 1.190 1.496 1.523 1.375 1.335 6,26%

Outros Países 5.960 4.347 4.424 4.697 4.649 4.704 -22,00%

TOTAL 51.241 50.095 51.327 52.374 53.511 54.717 4,43%Fonte: USDA; 1 Fórum Nac. Permanente da Pecuária de Corte da CNA; 2 EU-25; 3 Inclui búfalo* Preliminar; ** Previsão

PRODUÇÃO MUNDIAL DE CARNE BOVINA(Em mil toneladas equivalente carcaça)

Global Beef Production (tons eq. carcass, 000)

Source: USDA, 1 – CAN/FNPPC; 2 – EU25; 3 – includes buffaloes; * preliminar; ** forecasts. Prepared by CAN/FNPPC.

PAÍS 2002 2003 2004 2005 2006* 2007** Var. (06/02)

Brasil1 1.006 1.301 1.854 2.198 2.200 2.420 118,69%Austrália 1.366 1.264 1.394 1.413 1.420 1.495 3,95%

Índia2 417 439 499 627 750 800 79,86%

Nova Zelândia 486 558 606 589 540 570 11,11%

Estados Unidos 1.110 1.142 209 317 523 680 -52,88%

Uruguai 262 325 410 487 510 520 94,66%

Argentina 348 386 623 762 500 600 43,68%

Canadá 609 383 557 551 455 440 -25,29%

União Européia3 485 388 358 255 200 200 -58,76%

Outros Países 310 279 212 224 153 164 -50,65%

TOTAL 6.399 6.465 6.722 7.423 7.251 7.889 13,31%Fonte: USDA; 1 Fórum Nac. Permanente da Pecuária de Corte da CNA; 2 Inclui búfalo; 3 EU-25* Preliminar; ** Previsão

EXPORTAÇÕES MUNDIAIS DE CARNE BOVINA(Em mil toneladas equivalente carcaça)

Global Beef Exports (tons eq. carcass, 000)

Source: USDA, 1 – CAN/FNPPC; 2 – includes buffaloes; 3 – EU25; * preliminar; ** forecasts . Prepared by CAN/FNPPC

PAÍS 2002 2003* 2004 2005 2006* 2007** Var. (06/02)Estados Unidos 1.459 1.363 1.669 1.632 1.439 1.524 -1,37%

Rússia 719 720 730 993 840 905 16,83%

Japão 712 851 647 700 693 765 -2,67%

União Européia1 461 463 584 599 540 560 17,14%

México 489 370 287 325 365 375 -25,36%

Egito 173 123 168 214 225 240 30,06%

Coréia, Rep. da 430 444 218 243 193 230 -55,12%

Canadá 308 274 111 133 150 160 -51,30%

Filipinas 126 129 164 140 142 148 12,70%

Outros Países 365 337 313 444 420 458 15,07%

TOTAL 5.242 5.074 4.891 5.423 5.007 5.365 -4,48%Fonte: USDA; 1 EU-25* Preliminar; ** Previsão

IMPORTAÇÕES MUNDIAIS DE CARNE BOVINA(Em mil toneladas equivalente carcaça)

Global Beef Imports (tons eq. carcass, 000)

Source: USDA, 1 - EU25; * preliminar; ** forecasts. Prepared by CAN/FNPPC.

Source: FNPP-CNA, Agrostat/MAPA. Prepared by FNPPC.

Where brazilian beef is going to? (2006)

Per Capita Yearly Cons.36,6 kg

Domestic Market6.733 (mil t.e.c)

75%

Countries111

79%

Countries100

Processed467 (mil t.e.c)

21%

Brazil Total Production8.950 (mil t.e.c)

Exports 2.217 (mil t.e.c) 25%

Rússia: 26% UE25: 18% Egito: 16%

EUA: 31%UK: 25%Outros UE25: 19%

in natura 1.750 (mil t.e.c)

Brazil’s Share in the World Beef Market

Brasil29%

Austrália21%

Argentina7%

Outros22%

Nova Zelândia

8%

Canadá6%

EUA7%

Brasil14%

Austrália22%

Argentina6%Outros

22%

Nova Zelândia

8%

Canadá10%

EUA18%

Source: FAS/USDA

2002 2006

Egito13%

Rússia22%

UE-2521%

EUA4%

Chile4%

Venezuela3%

Outros34%Rússia

22%

UE-2534%

Egito11%

EUA8%

Chile1%

Outros24%

Argélia3%

Brazilian Beef Exports 2006

Source: ABIEC e MDIC.

$

Kg

3.9 US$ Billion

2.4 Million Ton Eq. Carc.

36

Global Market of Beef Meat - 2006

10 Biggest Exporters

CountryCountryBRASILAUSTRALIAINDIA N. ZELANDIA ARGENTINAURUGUAIESTADOS UNIDOS CANADAUEOUTROSTOTAL

31%19%10%7%7%7%7%6%3%3%

100%

% TOTAL

10 Biggest ImportersCountryESTADOS UNIDOSRUSSIAJAPÃOUEMEXICOEGITOCORÉIA DO SULCANADAFILIPINASOUTROSTOTAL

28%16%14%12%7%5%4%3%3%8%

100%

% TOTAL

Source: FAS/USDA (2006)

Challenges and Opportunities facing Brazil’s Beef Industry

Challenges and Oportunities

• Free of FMD with (and then without) vaccination

• Keep the National Traceability System (SISBOV) fully trustable and sufficient to attend main clients needs (as EU)

• Eliminate any relation between Brazilian meat and deforestation

• Resist new biofuels cost pressure

• Be qualified to attend extra international demand for beef

• Acess to key markets as EUA, Japan and Korea

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000

jan/05

fev/05

mar/05

abr/0

5mai/

05jun/0

5jul/0

5ag

o/05

set/0

5ou

t/05

nov/0

5de

z/05

jan/06

fev/06

mar/06

abr/0

6mai/

06jun/0

6jul/0

6ag

o/06

set/0

6ou

t/06

Tone

lada

s

0

50.000

100.000

150.000

200.000

250.000

300.000

350.000

Mil

US$

Mil US$ - in natura Mil US$ - industrializada Toneladas - in natura Toneladas - industrializada

Montly Beef Exports x 2005 FMD Outbreak

Source: ABIEC. Prepared by ABIEC.

Some key markets related to Brazil’s exports records

Source: MAPA/MDIC

País 2006 2005 2004 2003Rússia 743.188 555.273 239.107 100.344Argélia 101.707 75.693 61.434 12.954Bulgária 101.562 69.424 27.341 9.194Venezuela * 53.447 46.956 20.850 2.209

* Only processed meat

1000 US$

Other important countries :

Romania, Libya (in natura)

Cazaquistão, Mozambique (offals)

Cuba (processed)

Is the Brazilian Beef Production System based on Rainforest destruction?

Where are the actual limits of AMAZON ?

C.I. call this block Amazonia, including 9 states in Brazil and 8 different countries.

The green area is what Conservation International accepts as the Lowland Rain Forest. This regions

normally aren’t used for agriculture, simply because they don’t fit for this use.

This the map is made by another NGO (WWF) and in this case they plot the Amazon Biome.

Deforestation slow down since 2004

47

2006 Share

SP 43%

GO 18%

MT 14%

MG 7%

RS 7%

RO 4%

MS 2%

TO 2%

PA 1%

ES 1%

PR 0%

SC 0%

RJ 0%

TOTAL 100%

Brazil’s Export Plants and States % Share in Total Exports

Exporting Packing Plants

Source: ABIEC, modified by ASSOCON

Certify our production system is mandatory.

Good agricultural practices, ethics and traceability are our consumers drivers.

ASSOCONQuality Assurance Program

• Our model is based upon 4 “safeties” :

– Product Safety

– Animal Safety

– Social Safety

– Environmental Safety

New costs pressures

Biofuels pressure on grains costs

100

300

500

700

900

1.100

jan-90 jan-92 jan-94 jan-96 jan-98 jan-00 jan-02 jan-04 jan-06 jan-08

Soja Grão

Milho

Projeção

Fonte: CBOTProjeção: RC Consultores

Picture by Alltech Inc.

Source : UNICA

87 new plants in 6 yrs(more than 1 per month)

Land pressure for new sugar cane areas

Costs Variation 2006 x 2007

Item 2006 2007

Citrus Pulp Pelets (Ton) USD 65,0 USD 97,5 146%

Cotton Seed (Ton) USD 57,0 USD 87,0 152%

Corn (Ton) USD 111,0 USD 158,1 142%

Feed Cattle (360kg LW, per head) USD 238,0 USD 333,3 140%

Finished Steer (kg cw) USD 1.98 USD 2.12 107%

54Source : ASSOCON , market forecasts.

Who will attend the international demand for beef products ?

Beef Demand and Suply - Global

Diferença entre Produção e Consumo

-1500

-1000

-500

0

500

1000

1500

2000

Brasil

Austra

liaArge

ntina Ind

iaN. Z

elând

iaCan

adá

EUAHon

g Kon

gTaiw

anUcrâ

niaUE-25Filip

inas

Egito

Coréia

China

México

Russia

Japã

o

Mil

tone

lada

s

2006 2014

Fonte: FAPRI

Difference between Production and Consumption

These are, and will be, the beef global suppliers

Slaughter Rate at some selected countries

USA....................................37%EU.......................................34%Australia.............................32%Canada...............................29%Argentina............................26%Brazil...................................22%

Prepared by Fórum Nacional Permanente da Pecuária de Corte da CNA, based on USDA numbers.

2006 (1) Estimativa (2)

Total herd (millions heads) 204,7 204,7

Slaughter rate 21,67% 26,00%

Slaughter (million heads) 44,4 53,2

Production (meat, kg eq carc) 8.950,0 10.728,0

Per capita consumption 36,6 36,6

Domestic Market 6.780,0 7.458,0

Exports 2.200,0 3.270,3

Imports 30,0 30,0

Source: Fórum Nacional Permanente da Pecuária de Corte da CNA, modified by ASSOCON.

SIMULATING BRAZIL’S SLAUHTER RATE INCREASE 21,7% TO 26% (same as Argentina)

+48%

+20%

Do we have chance to attend the global extra demand ?

+10%

1 million ton of beef could be added to international market with just 3% more in the Brazilian turn over.

The President of Assocon, Mr. Ricardo Merola thanks the Quebec Feedlot Association and all the companies sponsoring this meeting for the invitation and the opportunity to be here.

In retribution Assocon wants to invite all of you to come and visit our member feedlots and the beef industry in Brazil. We will be very happy in assist you on any question related to Brazil.

We at Assocon share with all feedlot producers around the world the weight of the challenges ahead of us and have, as a credo, that we will only be strong together.

A final message from our President