Voluntary Report - public distribution

**Date:** 6/14/2006

**GAIN Report Number:** AR6022

AR6022

**Argentina**

**Livestock and Products**

**Argentine Cattle/Beef Sector Update**

**2006**

**Approved by:**

![](media/image1.wmf)Robert Hoff

U.S. Embassy

**Prepared by:**

Ken Joseph

**Report Highlights:**

Argentine beef exports for 2006 are placed at 500,000 tons, unchanged
from FAS\' previous report. As from June, the Argentine Government (GOA)
announced a relaxation of the 180-day ban on beef exports, in effect
since March 2006. Exports of fresh and frozen beef will now be subject
to a quota, while thermoprocessed beef and by-products can be shipped
without restrictions. Beef output is expected to drop marginally, while
domestic consumption should increase slightly.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Unscheduled Report

Buenos Aires \[AR1\]

\[AR\]

SECTION I. SITUATION AND OUTLOOK

Argentine beef exports for 2006 continue to be forecast at 500,000 tons
(carcass weight equivalent - CWE). The volume could have been
considerably smaller on account of a 180-day beef export ban imposed by
the GOA in March 2006. However, the GOA announced a relaxation of the
ban in June. Exports for 2006 continue to be forecast at least 35
percent lower than in 2005.

On May 26, 2006, the GOA announced the partial lifting of the
prohibition on beef exports. Through Resolution 397/2006, it established
an export quota for fresh and frozen beef for June-November 2006, the
equivalent of 40 percent of the volume exported in that same period in
2005. The resolution also rescinded Resolution 114/2006 of March 8,
2006, by which all beef exports were suspended for 180 days with the
stated objective of increasing the domestic supply, and lowering retail
beef prices. Under Resolution 397/2006, exports of thermoprocessed beef
and by-products are no longer banned, nor subject to quotas. It is
unclear what will happen on December 1, 2006, when the new resolution
expires. Most contacts believe that the GOA will monitor closely retail
beef and cattle prices, and depending on price fluctuations, will vary
the volume of exports (through a quota) and/or the level of export tax
to set new export volumes. Traders expect that if retail beef prices are
under control, a further relaxation on exports could be announced.

Although the GOA is fine-tuning the mechanism by which the new export
quota will be administered, most companies expect to resume shipments in
the next week or so. The resolution establishes that about 80 exporters
will obtain a portion of the quota based on their export performance
during the 6-month period in 2005. Exports under the Hilton Quota and
bilateral agreements (Venezuela and Morocco) were excluded from the ban
and are not taken into account in the establishment of the new quota for
fresh and frozen beef, which would total about 92,000 tons (product
weight).

Total exports for 2006 could range between 470,000-520,000 tons CWE.
This is a result of adding the newly set quota, exports for the first
four months of the year (mostly shipped prior to the ban - which were
between 180-200,000 tons CWE), exports of thermoprocessed beef, and
shipments under the Hilton Quota and bilateral agreements.

Most traders indicate that Argentine exports of fresh and frozen beef
under the new quota will go primarily to the European Union (EU), the
Russian Federation, and to Israel. The big exporters will try to
optimize their shipments by selling higher-end cuts. These will likely
be out-of-quota chilled cuts to the EU (primarily Germany, the United
Kingdom and the Netherlands) and also cuts for the Russian market, which
late last year approved 15 local plants to export beef cuts for retail
sale. Exports to Brazil will also resume. Smaller exporters, who do not
have the possibility of exporting to the EU, and are not approved for
the Russian retail market, will probably ship lower quality beef cuts to
the Russian Federation for processing. Chile, which closed its border to
Argentine beef because of a Foot-and-Mouth Disease (FMD) outbreak in
Corrientes Province in February 2006, is expected to re-open its market
next September. Chileans are in need of beef, which they are currently
sourcing from Paraguay and Uruguay at high prices.

Because of the export ban, exports of themoprocessed beef for 2006 are
projected to be marginally lower than in 2005. After the 180-day ban
announced in March, several shipments of beef with open letters of
credit continued to leave the country. However, in mid-April the GOA
suspended all shipments, including several hundred containers at port.
These were finally released in late May. While the ban was in place, the
few local plants, which produce thermoprocessed beef, continued to
process at a slower pace. They took advantage of the low price of cattle
(primarily cows), while expecting that exports would resume sometime in
the near future. When the GOA announced the relaxation of the export
ban, which included the total liberalization of themoprocessed beef
exports, meat packers had a good stock of product ready to be shipped.
Most contacts indicate that exports in the next 6 months will be steady.
In the case of company contracts, contacts state that most of them will
be fulfilled.

In May 2006, the OIE declared Argentina free of BSE. The previous status
was provisionally free of BSE. The country continues to be FMD-free with
vaccination, and thus, cannot ship chilled beef to NAFTA countries,
Japan and South Korea. The animal sanitary services of Argentina and the
U.S. continue working on the risk assessment, through which Argentina is
requesting access to the U.S. market for fresh, boneless beef exports.

Local meat packers in the next couple of months are expected to
compensate their higher industrial costs (as the result of limited
production) with low cattle prices and strong FOB prices. However,
cattle prices are expected to recover during the spring (as producers
retain their cattle during the highest producing season), and export
prices could drop if Brazil is able to resume exports to markets which
previously had been shut down due to Brazil's FMD outbreaks.

Many meat packers and cattlemen are concerned about the future of the
industry because the GOA's measures aimed at ensuring low beef prices
for the large domestic market, and changes of rules which these measures
have represented, have not encouraged production and investment. The GOA
and many provincial governments have or are about to launch "Cattle
Development Programs" to promote and encourage cattle/beef production.
However, private sector contacts doubt their effectiveness. In their
view, if the GOA wants to keep retail beef prices low and take advantage
of the strong world market, it will need to come up with a policy which
effectively increases beef supply. Cattle prices fell more than 20
percent in the past couple of months as result of the ban (while beef
prices at retail dropped marginally), and ranch profits are now very
thin. Many cattlemen are discouraged and have threatened to go on strike
if they do not see significant improvement in official measures towards
their sector.

Domestic consumption for 2006 is still projected at 2.6 million tons
(roughly 66 kilos per capita, the highest in the world). Although total
slaughter in 2006 is forecast to drop due to the drought of 2-3 years
ago, beef output is expected to be only marginally smaller. Average
carcass weights in the first four months of this year were significantly
higher than those of the same period in 2005. This is the result of a
reduced slaughter, which normally tends to push average weights up, and
the GOA's restriction to the slaughter of animals below 280 kilos live
weight. The local feedlot industry, which represents between 10-20
percent of the total slaughter, is expected to reduce its output in 2006
because of the official weight restriction, higher corn prices, and
market uncertainty. The weather so far has been quite dry, affecting
pasture conditions. Cattlemen indicate that they will use fewer feed
supplements, since returns are very small.

In early April 2006, the GOA signed an agreement with the cattle/beef
sector by which it set reference prices for 11 popular cuts. This was a
consequence of continued price increases. These new prices contemplated
decreases of 25 percent on average. However, by late May, some private
consultants indicated that as a result of all these measures (export ban
and price agreements), cattle prices fell about 20 percent, while retail
beef prices just dropped 3 percent. Some private consultants indicate
that if the GOA would not had taken these measures, retail prices would
probably be considerably higher than what they are currently. If this
had been the case, inflation in 2006 would have been running higher than
the 4.4 percent through May, since beef prices are a heavily weighted
component in the consumer price index. However, these same consultants
emphasize that the cost of the GOA's market interventions have been very
big for the local cattle/beef industry.

SECTION II. STATISTICAL TABLES

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