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This paper describes a simulation model combining the main components of water balance and growth of perennial grassland steppe in Chilean Patagonia, to estimate long-term annual production (Yr, kg ha-1) and sheep carrying capacity (GC, sheep equivalent [EO] ha-1). The model is based on climate-water balance relationships, where the basic process is evapotranspiration. The model calculates Yr depending on the accumulation of transpiration and the water use efficiency from the time of growth initiation until the grassland accumulates the maximum amount of dry matter (DM). Depending on Yr, the DM requirement of EO, the proper use factor of grassland and a slope correction factor, a range site GC is calculated. Simulations were performed using actual climate data sets of eight growing seasons at Kampenaike (52°41' S; 70°54' W; 12 m.a.s.l.) and a long-term simulation in the same location, using a stochastic weather variables generator. Through the model it was possible to estimate the water loss associated with the components of water balance and estimate the restriction imposed by water deficit on Yr. By simulating many years, it was possible to establish a normal distribution of GC with 0.629 EO ha-1 yr-1, associated with 80% probability of being exceeded, which is lower than values reported in field assessments. This method calculates GC with a conservational approach, taking into account soil and climatic variability in semiarid ecosystems. [ABSTRACT FROM AUTHOR]