Growing corn demand for ethanol has many beef producers across the country more than a bit nervous. But, if you think ramped-up ethanol production in the U.S. is impacting the dynamics of domestic cattle production, a look south indicates a similar story. But, in Brazil, the competition isn't over corn -- it's over another kind of grass.
In Brazil, where sugarcane is king, harvest is around 13 million acres today. Brazil's Center for Sugarcane Technology predicts that by late next year 40-50 new alcohol production plants will join the existing 340 plants already in service. Each will need about 67,000 acres of sugarcane located no more than 40 kilometers from the mill. In the state of Sao Paulo alone 2 million acres of cattle pasture will convert to sugar cane in order to fuel another 90 plants planned to be built between 2008 and 2010.
Because Sao Paulo state benefits from some of the best transportation infrastructure in the country, the value of land for sugar cane has risen nearly three-fold over the past three years to $1,250/acre.
Comparing sugar cane ethanol with corn-based production is one that Brazilians love to make. They note that ethanol extracted from corn yields only about 15-25% more energy than the fuels used to produce it. In Brazil, industry studies show cane-based ethanol yields about 830% more energy. Plus, the ethanol plants are fueled with bagasse, the leftover sugarcane stalk.
The upshot is Brazil's thirst for ethanol is driving the cattle industry north and northeast at warp speed into regions of poorer highways, fewer meat packing facilities, and even less law enforcement. Significantly, in just the past couple of years, the state of Mato Grosso has replaced its southern neighbor, Mato Grosso do Sul, as the leader in cattle numbers.
This competition for land in the more fertile and developed southern regions forces Brazilian cattlemen to be even more reliant on the tropics-happy Zebu breeds as the nation's herd shifts north. They are great for that environment -- but on a comparative scale can't compete against their more efficient Bos taurus cousins. And, the beef from these animals simply cannot compete for space in America's meat cases.
Much of the north and northeast is frontier where land must be cleared, fenced and planted to exotic forages before an animal is turned out to graze. And, because of attention to the native ecosystems environmental restrictions against cattle grazing are increasing.
We must also remember that until the South American continent rids itself of foot-and-mouth disease (FMD), Brazil will be hard-pressed to gain entry into NAFTA and Asian fresh beef markets. And, it's the border frontier regions where the danger of FMD lurks.
On Fazenda Mosquito, a former Swift/King Ranch holding now owned by Canadian agro-industrial conglomerate Brascan, about two-thirds of the ranch's 75,000 acres is being systematically converted to sugarcane. A remainder of the property will be saved for "seedstock" production to funnel replacement Nelore cattle onto other Brascan properties located in more remote reaches of Brazil's sub-Amazon cerrado region.
This movement may have a long term impact on Brazil's competitive edge in global beef markets. As the heart of the country's cattle herd moves north, it leaves behind the efficiencies of transportation and marketing infrastructure and animal productivity.
In the scope of global competition, this may be good news long-term for U.S. cattlemen. Make no mistake, with 190 million head of cattle Brazil's a formidable player in global beef trade. But, it's the Aussies and the Kiwis who fear Brazil the most today.
That said, U.S. beef producers must continue to seek every competitive advantage possible while facing pressure from shifting corn usage. We must be aware of the dynamics of the supply chain -- and be willing and able to adapt as competitive forces swirl around us at home and abroad.
-- Clint Peck