Rising calf prices, exchange rate to drive beef production costs

Beef production costs in Brazil are expected to rise in 2025, driven by a high exchange rate and reduced availability of young cattle for herd replacement.

According to the Esalq/BM&FBovespa index, the average price of calves traded in Mato Grosso do Sul closed the year with a cumulative increase of 27.45%, reaching R$2,643.23. Young cattle represent the largest expense for producers engaged in the final stage of the beef supply chain—fattening—which is likely to erode their profit margins this year.

“This shortage of replacement animals, from rearing to fattening, significantly impacts production costs as a whole,” said Paulo Dias, head of Ponta Agro, a data management company.

Mr. Dias also highlighted the rising exchange rate as a factor pressuring sector costs. “The dollar’s appreciation against the real encourages Brazilian grain exports, consequently reducing their availability in the domestic market,” he said.

In December, the Ponta Agro Feeding Cost Index (ICAP) rose by 1.46% month-over-month in the Central-West region and by 7.08% in the Southeast. Annually, however, the index fell 14.41% in the Southeast and 8.34% in the Central-West, reflecting a record grain harvest in 2024 that lowered the cost of raw materials for confined animal feed.

“This increased supply pushed domestic prices down, benefiting the animal feed chain throughout 2024,” Ponta Agro noted in a statement.

Based on its findings from December 2024, the company estimates total production costs of R$224.09 per arroba (metric unit equal to 15 kilos) of beef in the Central-West and R$211.28 per arroba in the Southeast. According to Ponta Agro’s calculations, these costs would allow ranchers to earn profits exceeding R$810 per head in the Southeast and R$560 per animal in the Central-West.

“In 2025, animal nutrition is unlikely to be a major cost driver. The primary cost increases will come from higher replacement prices,” said Fernando Iglesias, an animal protein analyst at consultancy Safras & Mercado.

With robust international demand and record exports last year, Mr. Iglesias noted that beef prices for consumers are also expected to rise in 2025, due to fewer animals ready for slaughter and increased demand for Brazilian beef.

“The past two years saw heavy culling of female cattle, and this will have consequences for the market now. We’ll see fewer replacement animals available, which will increase production costs,” Mr. Iglesias explained.

According to data from the Brazilian Institute of Geography and Statistics (IBGE), the share of females in total cattle slaughter in Brazil during the first and second quarters of 2024 was 32.1% and 30.79%, respectively—higher than the 25.1% and 25.63% recorded in the third and fourth quarters of 2022, a year when the price of an arroba exceeded R$350 during the sector’s boom cycle.