Cattle Rally to Record as Demand Climbs, Boosting Wal-Mart Costs

Cattle futures jumped to a record in Chicago as rising demand for U.S. beef erodes supplies of animals for slaughterhouses and boosts meat costs for food retailers, including Wal-Mart Stores Inc.

The U.S. cattle herd is the smallest since 1958 as beef exports surged 19 percent in 2010 to about 2.3 billion pounds (1.04 million metric tons), according to the U.S. Department of Agriculture. Cattle prices have jumped 27 percent in the past year, fueled by a global economic recovery that is boosting meat demand in emerging economies, including China.

Global food costs jumped to an all-time high in February, the United Nations said. Surging corn prices have boosted beef and pork as producers paid more for livestock feed. Food costs contributed to riots in North Africa and the Middle East that toppled leaders in Egypt and Tunisia. The government says U.S. consumers may pay as much as 5 percent more for meat this year.

“World demand and foreign demand for beef is so strong,” said David Kruse, the president of CommStock Investments Inc. in Royal, Iowa. “It’s essentially diverting supply away from the U.S. as we’ve seen a strong increase in beef exports.”

Cattle futures for June delivery gained 1.55 cents, or 1.3 percent, to settle at $1.1745 a pound at 1:08 p.m. on the Chicago Mercantile Exchange. After the close of regular trading, prices touched $1.18, the highest for a most-active contract since the commodity started trading in 1964.

“A combination of export demand for end-meats along with improving domestic demand for middle-meats ahead of the spring/summer grilling season all helped packers in achieving higher prices for beef,” Troy Vetterkind, the owner of Vetterkind Cattle Brokerage in Chicago, said in a report.

‘Inflationary Environment’

Wholesale beef has jumped 18 percent in the past year, and at mid-day prices rose 0.9 percent to $1.7684, the highest level since at least January 2004, USDA data show. Higher prices are increasing costs for restaurants and retailers.

“We’re all dealing with a very different inflationary environment than we were in just a couple of years ago,” Brian Cornell, chief executive officer of Wal-Mart’s Sam’s Club chain, said in a presentation yesterday. “It’s going to continue to impact the prices we pay for beef.”

The USDA estimates net-cash incomes for beef-cattle farmers will drop 9.1 percent this year, which may limit prospects for expansion.

Feeder-cattle futures for August settlement rose 1.25 cents, or 0.9 percent, to $1.37375 a pound, and reached a record $1.3775 after the close of regular trading.

Feedlot operators buy year-old animals that weigh 500 pounds (227 kilograms) to 800 pounds, called feeders. The cattle are fattened on corn until they weigh about 1,200 pounds, when they are sold to meatpackers.

Hog futures for June settlement added 0.275 cent, or 0.3 percent, to settle at $1.0195 a pound in Chicago. Earlier, the price gained as much as 0.7 percent to $1.0235, the highest for a most-active contract since at least April 1986.

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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