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Texas Agriculture Archive
April 7, 2006
Soybeans and Cattle Reign Supreme in
ARGENTINA
First of Two-Part Series
Editor's Note: Four board members including Gary McGehee, District 6; Lewis Lehman, District 7; Tom Paben, District 11; and Arthur Bluntzer, District 12; and two Commodity Advisory Committee chairmen including Kody Carson, Cotton; and Dr. Bud Alldredge, Animal Health; traveled to Argentina and Brazil recently on a fact finding mission. Their objectives were: 1) Study the competitiveness of Brazil and Argentina production to U.S. agriculture commodities; 2) Compare the progress made by Brazil since the last Texas Farm Bureau exploratory trip in 2002; 3) Study the infrastructure of each country and determine how soon this could have a major effect on U.S. agriculture; and 4) Learn about the production cost, marketing structure and potential for future growth.
Part One of this two-part series will focus on Argentina. In Part Two, we'll take a look at Brazil.
By Mike Barnett
Editor
Liniers Cattle Market in Buenos Aires is a sight to behold. White wooden fences encompass this 35 hectare facility—the largest cattle market in the world.
Some 10,000 to 13,000 head of cattle are sold here each day, four days a week.
The first thing you notice is how clean it is. No flies buzz around your head. And the pens—built on concrete and brick bases—are relatively free of manure.
Also noticeable is the lack of noise: no calves bawling for their mothers, and no mothers bellowing for their calves.
According to Jorge H. Cazenave, a native of Argentina, former ag attache to the United States, and our tour guide, most of the cattle that come to the facility are grass-fed finished steers, weighing between 380 to 400 kilos, or about 800 to 900 pounds.
Most are good quality. Predominant breeds are red and black Angus, followed by Hereford. Very few earred cattle are at the facility.
Some 15 percent of the cattle marketed in Argentina are sold at Liniers Cattle Market. Prices here tend to set the mark for the rest of the country. Most of the cattle are sold to local supermarkets and packing plants for consumption in the Buenos Aires area. The other 85 percent are marketed in local auctions or directly from the farmer/rancher to the packer.
Some 9,574 head were sold the day we were there. Fifty auctioneers work the sale on a catwalk above the cattle, moving from pen to pen, followed by buyers. Once a pen was sold and the pay weight established, sale data—available to both buyer and seller—was entered into a computer.
Tom Paben of Waller was quite impressed with the auction.
"It's really amazing how they run that many cattle through there that quick," he said. "The quality of the cattle were real fine. They had a lot of finish, slick hair...they were in very good condition."
Paben noted, after converting kilos to pounds and pesos to dollars, that the cattle brought about 32 cents per pound.
"I'm glad I'm selling in my market," he said with a laugh. "But really, we don't know what their feed cost is and their land use cost. I don't know if that's a good price or not, but it sounds awful cheap to me."
•••
It's easy to be impressed when visiting the Swift (no relation to the
American Swift company) packing plant in Rosario. The company used to be owned by Campbell soup and still supplies the beef for Campbell products that contain meat.
Eduardo Sanjurjo proudly showed off this ultramodern facility, now owned by a group of Brazilians. The largest slaughter facility in Argentina, the integrated plant can process 1,200 head per day and focuses on special cuts for exports, frozen cooked meat, canned meat, and cold cuts, broth beef extract and edible fats. Plant capacity is 200 tons of red meat with no bone, per day.
"I was quite impressed," said Dr. Bud Alldredge. "It was absolutely one of the cleanest, most modern of all the plants that I've been in many years. I was quite impressed with their HACCP (Hazard Analysis and Critical Control Point) program and the quality of their workers was absolutely marvelous."
An air of uncertainty prevailed in the plant the day we were there. The plant is highly dependent on exporting its beef, and the Argentine government had just the day before announced a 180-day suspension of beef exports.
Sanjurjo explained: "Now that the economy is doing better, people (in Argentina) are eating more beef. In one year, per capita consumption rose 15 pounds. However, the herd size is still the same. There's not enough cattle to serve domestic demand. A country that eats 60 kilos of meat per capita, the population must shift their eating habits. If beef prices are higher, the population must learn to eat chicken or pork.
"The government yesterday stopped beef exports for 180 days. This is a terrible situation for a company like ours," Sanjurjo said, noting that 80 percent of the beef they process is exported.
Sanjurjo was afraid that with the ban, his export market would dry up. His plant was working on a promising contract with Dubai that called for thousands of pounds per year of expensive, high quality cuts.
"That was yesterday," Sanjurjo sadly said. "Now that's gone."
•••
When the price of beef goes up, "the government goes crazy," said Robert Hoff, USDA attache with the U.S. embassy in Buenos Aires. Hoff and Kenneth Joseph, agriculture specialist for USDA's Foreign Agriculture Service (FSA), presented an overview of Argentina agriculture.
"Last week cattle prices were up 5 to 6 percent. We're expecting the government to put its foot down again," Hoff said, only hours before the government took action.
Hoff explained that a combination of strong domestic demand and a strong world demand (Argentina exported 760,000 tons of beef in 2005) have triggered the big increase in internal beef prices.
The Argentine government, concerned about inflation, increased beef export taxes from 5 to 15 percent, and eliminated export rebates, which were roughly 5 percent. When that didn't work, the export ban was put in place.
"It is clear that these punitive measures will have a long-term impact on Argentina's livestock industry," Hoff said.
The government—along with a limited amount of productive land—is keeping Argentina from becoming a world agricultural powerhouse.
Although agriculture has a huge impact on the economy—representing directly 13 percent of the domestic product and 30 percent indirectly—the government treats it like a stepchild.
Agricultural exports are heavily taxed. Soybean farmers pay 23.5 percent of revenue as a tax. Corn and wheat pay 20 percent. Meat has a 15 percent export tax.
"The government looks at agriculture as a way to fund its social programs," Hoff said. "Tax collection doesn't work in Argentina. Paying up front on exports, it's easy to collect from the farmers."
While cattle production has remained stagnant for decades, soybeans are now the cutting edge crop.
"Soybeans are the leader and the reason is Monsanto Roundup-Ready technology and no-till," Hoff said. "Argentina is number three in the world in terms of oilseed production. We're expecting a record crop this year."
However, according to an information piece put together by Hoff, many Argentine producers do not pay technology fees on Roundup-Ready soybeans, and farmers are allowed to save seeds from one year to the next.
Soybean production has increased rapidly in Argentina, growing about 8 percent per year since 1990, and continues to accelerate today. Argentina's soybean area has been at year-over-year record levels since 1993, when 5.4 million hectares were planted. In 2004-05, 14.4 million hectares of soybeans were planted. Acreage in other crops, including wheat, rice, corn and cotton, have declined as soybeans have increased. Also, cattle production has been shifted to less productive land in the south and west of Argentina as soybeans have taken over the temperate Pampas area.
•••
Travel to Rosario, the third largest city in Argentina, and the size and scope of Argentina's soybean industry is overwhelming.
There on the banks of the Parana-Paraguay River lay some 20 grain export facilities and soybean crushing plants—including the highest concentration of soybean crushing plants in the world—with more under construction. With working plants and plants under construction, Argentina soon expects to be able to crush some 160,000 tons of soybeans a day.
"The port facilities are fascinating," said Kody Carson. "For a West Texas boy, it's amazing to see ocean-going vessels some 250 miles from the ocean. We look at the Mississippi River and it doesn't flow the amount of water that some of these smaller South American rivers do."
Government policy changes in the early 1990s—including privatizing and deregulation of railroads and ports—has encouraged companies like Louis Dreyfus to make huge investments in Argentine facilities.
This French company is one of the largest grain/oilseed exporters in Argentina, according to a company spokesperson. With investment in a new plant that will come on line soon, Louis Dreyfus will have a soybean crushing capacity of 30,000 tons a day.
"Seventy percent of the soybean crop is located within 250 kilometers of the port," the spokesman said. "That's good for soybeans, bad for other commodities. Soybean production is growing north and west at the expense of cotton, lemon and orange production."
•••
"Mile after mile of beans," is how Kody Carson describes the area around Pergamino, a city of some 80,000 located in the heart of the fertile Pampas region.
Gently rolling hills mark this region, with soybeans as far as the eye can see, broken only by windbreaks and some fields of corn. Pastures filled with English-type cattle dot the low-lying areas in the region.
This is the home of Allejandro Gallon, who raises crops and cattle on owned and leased land.
Gallon said cattle production has been pushed out of his region the past few years due to the higher profitability of soybeans.
He still keeps cattle, however, to try to preserve the fertility of his crops by rotating pastures with crops.
"I get a better income from crops," Gallon said. "When taken on the average, cattle production is not far behind."
Gallon uses 270 hectares of his operation to finish cattle. He also devotes acreage to producing Angus bulls and replacement heifers, which he can sell at a higher value.
Cattle are grazed in a rotational system and are moved every day. Pastures are based on alfalfa, with wheat and oats grazed in the winter months.
On the crop side, Gallon grows soybeans, wheat and commercial high oil corn and popcorn. He uses green peas and oats as a winter crop, and has an agreement to grow green peas for instant soup. He also plants some milo and sunflowers.
"This is deep, very rich soil with lots of organic matter," Gallon said. "If you dream of a soil, this is it."
Gallon owns a lot of equipment, but custom farms a lot of acreage. By and large, he says Argentine farmers feel better about their future than they did in the past.
"We are happier now than in the last 15 years," he said. "We will shoot not to increase in size, but to improve quantity and quality of what we produce."
•••
It was the consensus of the Farm Bureau group that Argentina could be a formidable competitor to U.S. agriculture if farmers there had land available to expand crop production and a sympathetic government. Some felt the move toward soybeans in Argentina was good for Texas agriculture, where few soybeans are grown.
"Soybeans and corn seem to be replacing all of this high quality pasture land," said Dr. Bud Alldredge. "Soybeans seem to be the reigning king of crops in this part of Argentina. It's quite impressive. But at the same time, you see the sacrificing of cattle numbers in this entire area because of soybeans."
Alldredge said he was surprised at how advanced their agriculture was.
"Yes, I think we'll hear more from Argentina in future competition, primarily in export markets," he said. "Argentina is quite an agricultural force, I think."
Kody Carson was impressed.
"I underestimated them, as I think a lot of U.S. producers do," Car-son said. "I think a lot of times we think we're the standard. In some ways we are. But it's amazing how close they are to being on a level playing field with us."
Liniers Cattle Market—the largest cattle market in the world—supplies the domestic beef needs for Buenos Aires, the largest city in Argentina.
Note the European architecture of the city.
Gauchos on horseback move the cattle through the maze of pens.
The Louis Dreyfus soybean crushing facility is located south of Rosario.
Port facilities are centered around Rosario on the Parana-Paraguay River, located in the center of the soybean producing region.
Arthur Bluntzer and Allejandro Gallon.
The Pampas region is planted in soybeans as far as the eye can see.
Cattle are finished on lush fields of alfalfa at Gallon's farm.
Gary McGehee looks over a no-till planter at Gallon's farm.
