Record Beef Price Gains as Corn Cost Slows Feedlot Cattle Buying
Record Beef Price Gains
Daniel Acker/Bloomberg
Rising demand helped send U.S. beef to a record $4.288 a pound on average at supermarkets in February.
Rising demand helped send U.S. beef to a record $4.288 a pound on average at supermarkets in February. Photographer: Daniel Acker/Bloomberg
U.S. feedlots probably bought fewer cattle to fatten for slaughter last month as surging corn costs spurred losses, signaling smaller herds this year and further gains in beef prices that already are the highest ever.
Feedlot operators purchased about 1.646 million head, down 1.7 percent from February 2010 and the first year-over-year drop since July, according to a Bloomberg survey of 14 analysts. The U.S. Department of Agriculture will release its estimate today at 3 p.m. in Washington.
Rising demand helped send U.S. beef to a record $4.288 a pound on average at supermarkets in February, as corn prices reached a 31-month high and the pace of food inflation accelerated, government data show. Wendy’s/Arby’s Group Inc., the third-biggest U.S. hamburger chain, said this month that its beef costs may rise 15 percent or more this year.
“Availability of calves and feeders is a problem, and it will get even worse,” said Rich Nelson, the director of research at Allendale Inc. in McHenry, Illinois. “This will tighten beef supplies in the third and fourth quarter and through all of 2012. We will see retailers scramble to have the consumer pay.”
Feedlot operators in the U.S., the world’s largest beef producer and the largest exporter, after Brazil, buy year-old cattle that weigh 500 pounds (227 kilograms) to 800 pounds, called feeders. It takes four or five months on a diet of mostly corn before the animals weigh about 1,200 pounds, when they are sold to meatpackers.
Higher Costs
Higher input costs are driving beef prices higher, said Jerry Rebel, the chief financial officer of San Diego-based fast-food chain Jack in the Box Inc. By year end, retail-beef prices may be up 15 percent from 2010, Allendale’s Nelson said.
The higher cost of grain means feedlots without risk- management plans lost about $6 on each animal sold in February, compared with a $20 profit a year earlier, said Ron Plain, a livestock economist at the University of Missouri in Columbia.
“Feed costs continued to rise,” Plain said. “Most cattle feeders were probably surprised by how expensive feed ended up being during the period.”
Even after the price of corn dropped from last month’s high of $7.4425 a bushel on the Chicago Board of Trade, the grain is 73 percent higher than a year ago, reducing the incentive for feedlots to expand purchases of young cattle. Yesterday, corn futures for May delivery rose 30 cents, or 4.9 percent, to $6.465, the biggest gain in five months.
Costs Curb Output
Feedlots may pay $5.05 to $5.75 a bushel for corn in the year that began Sept. 1, “up substantially” from the average of $3.55 a year earlier, Shayle Shagam, a USDA livestock analyst said on Feb. 25. U.S. beef output may drop 1.5 percent, he said.
While feedlots are buying fewer animals, their herds may have increased because operators increased purchases in previous months as beef demand and prices jumped, analysts said. The total herd on March 1 probably will be 5 percent larger than a year earlier at 11.386 million head, according to the Bloomberg survey. Producers probably sold 1.764 million animals to beef plants in February, up 2.8 percent from a year earlier, analysts said.
Including dairy cows, the total U.S. cattle herd on Jan. 1 totaled 92.582 million head, the lowest since 1958, government data showed on Jan. 28. That figure may shrink an additional 1 percent this year as higher feed costs prompt dairy and beef-cow producers to maintain smaller herds, Shagam said.
Wholesale choice-beef prices jumped 22 percent in the past year to $1.8779 a pound yesterday, according to USDA data. The price of slaughter-ready cattle on the Chicago Mercantile Exchange climbed 19 percent over the same period, touching a record $1.18 a pound on March 9.
Meat Exports Rise
The rallies were fueled partly by global economic growth that is boosting incomes and demand for meat protein in emerging economies, including China.
U.S. beef exports jumped 19 percent in 2010 to 2.3 billion pounds (1.04 million metric tons), according to USDA data. Mexico was the biggest buyer last year, followed by Canada and Japan. U.S. shipments rose 24 percent in January from the same month in 2010, according to the government.
Cattle futures for June delivery rose 1 percent yesterday to $1.11775 on the Chicago Mercantile Exchange. Feeder-cattle futures, which touched a record $1.38 a pound on March 9, closed yesterday at $1.32175, up 1 percent.
Beef and chicken purchased by Wendy’s/Arby’s restaurants each account for one-fifth of the total spent on commodities, Stephen E. Hare, the chief financial officer, said March 10 at an industry conference in New York.
Cost Risk
“Beef costs are anticipated to increase 10 percent to 15 percent in 2011, with a risk that they could go even higher,” Hare said. The Atlanta-based company will make up that cost with higher selling prices and more favorable chicken costs, he said.
Consumers already are paying more. Retail-beef prices measured by a composite that includes choice beef, other beef and hamburger values, rose 9.4 percent in February from a year earlier, the USDA said in a report yesterday.
U.S. food inflation accelerated 0.9 percent in January, the fastest monthly pace since June 2008, when prices were headed for their biggest annual gain in 28 years. Costs will rise as much as 4 percent this year, more than the 2 percent to 3 percent estimated in January, the USDA said last month. For the year, shoppers may pay as much as 4.5 percent more for beef, the department said.
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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