The cattle industry in Brazil is experiencing a period of remarkable growth and transformation. This essay delves into the current state of cattle production in Brazil, its position in the global market, and explores how one can invest in cattle on the stock exchange.
The Booming Cattle Production in Brazil
Brazil has witnessed a substantial increase in its cattle production in recent years, thanks to favorable conditions. It has solidified its position as the world’s largest exporter of beef. In April 2019 alone, there was a staggering growth rate of 56.8% in comparison to the previous year. Millions of tons of beef are now shipped to every corner of the globe, making it one of Brazil’s most significant commodities. Additionally, domestically, beef consumption is noteworthy, with an average of 42 kg per capita annually.
Investing in Cattle on the Stock Exchange
The commodity known as “boi gordo” (fat cattle) is one of Brazil’s primary commodities due to its high production levels. Investing in cattle on the stock exchange begins with the purchase of young, lean cattle, which undergo a period of fattening. The goal is to ensure maximum profitability concerning prices and volatility.
Investors in cattle futures are charged per “arroba líquida” (a Brazilian unit of weight) in Brazilian Reais. The minimum contract specifies 330 “arrobas líquidas.”
To better understand, let’s consider the current cattle price, for instance, at R$ 209.85 per arroba (as of September 20, 2023, at 14:38). The calculation would be as follows:
Contract Value = R$ 209.85 x 330 arrobas = R$ 69,250.50 (Quote as of September 20, 2023, at 14:38)
At the time of settlement, consider a producer who must sell at a cost at least 10% lower than the current cattle price. In this scenario, the minimum profit would be R$ 188.87.
If there is a 20% devaluation, lowering the price to R$ 167.88 per arroba at the time of sale, the producer has the right to settle at the originally contracted price, ensuring a profit.
However, if there is a 15% appreciation, pushing the price up to R$ 241.33, the producer has the option to sell at this higher price instead of the originally agreed-upon one. In this case, the initial contract becomes less attractive, and the final price is determined by subtracting it from the market price (R$ 241.33).
Read also: how i turned $100 into $10000 in just 30 days sebofeducation.com
Contract Expiry in the Cattle Market
Although there is a specific period for fattening cattle, contracts in the cattle market have expiration dates throughout the year. Over the course of 12 months, investors can settle their contracts, provided they adhere to the agreed-upon deadlines. This flexibility provides investors with greater versatility and liquidity for their investments.
Negotiations take place until the last business day of the month, from 9 a.m. to 4 p.m. and from 5 p.m. to 6 p.m.
Factors Influencing Cattle Price Fluctuations
The cattle price varies due to a range of factors, including the contract’s expiration date and the global economic landscape. Market conditions, such as supply and demand and international trade agreements, play a significant role in determining the daily cattle price. The Boi Esalq index is a key indicator, and transactions on the B3 (Brazil’s stock exchange), the Chicago Mercantile Exchange, and the Australian Securities Exchange are pivotal in shaping the industry’s dynamics.
