The cattle herd in the U.S., the world’s largest beef producer, probably shrank to the smallest in 61 years as drought ravages pastures from Texas to Nebraska and boosts feed costs.
Ranchers held 88.92 million head of cattle as of Jan. 1, according to the average estimate of eight analysts surveyed by Bloomberg News. That’s down 2 percent from a year earlier and is the fewest for that date since 1952. The U.S. Department of Agriculture is scheduled to release its semiannual inventory report at 3 p.m. in Washington.
The worst U.S. drought since the 1930s cut Midwest corn harvests for a third straight year, sending prices to a record in August. Crop-insurance claims for 2012 surged as payouts reached a record $13 billion. Higher feed costs discouraged herd expansions, even as retail-beef prices surged to a record. Dry weather has spread over a wider area since 2011, when parched fields led to $3.23 billion of losses on livestock in Texas, the biggest cattle-producing state.
“Drought in the southern plains in 2011 expanding to the Corn Belt and other northern areas last year is instrumental in numbers being down,” Tim Petry, a livestock economist at North Dakota State University in Fargo, said in a telephone interview. “With lower production, I fully expect consumers to pay higher prices for beef.”
Cattle futures advanced 8.9 percent last year on the Chicago Mercantile Exchange, the fourth straight annual gain. Prices rose 0.4 percent in January to $1.328 a pound yesterday, capping the fourth monthly gain.
The price of all-fresh retail beef climbed to record $4.797 a pound in November, USDA data show. While costs eased to $4.766 in December, prices still were 4.7 percent higher than a year earlier.
Consumers may pay as much as 4 percent more for beef this year, after prices rose 6.4 percent last year, according to the USDA. That was the biggest expected increase of any food item tracked by the agency and more than double the 2.6 percent rise forecast in overall food costs. Restaurants from steakhouses to hamburger joints are projecting accelerating beef costs.
On average, profit for U.S. cow-calf operations dropped to $57 per head last year from $87 in 2011, said Ron Plain, a livestock economist at the University of Missouri in Columbia, citing the Livestock Marketing Information Center, a researcher funded by the industry and government. Producers are ready to expand “as soon as the weather cooperates,” he said.
More than 57 percent of the U.S. was in drought as of the week ended Jan. 29, compared to 36 percent a year earlier, according to the U.S. Drought Monitor. About 27 percent of the High Plains is in “exceptional” drought, compared to less than 0.1 percent in that category a year earlier, according to the Monitor in Lincoln, Nebraska.
Drought conditions are expected to persist through the Great Plains and spread across most of Texas, according to a three-month U.S. outlook by the Climate Prediction Center that’s valid through April 30.
The number of young, female cattle held back for breeding probably rose 0.5 percent to 5.24 million head, according to the Bloomberg survey. An increase that small will just maintain the cow herd rather than signal an expansion, said Lane Broadbent, a KIS Futures Inc. vice president in Oklahoma City.
“The thing that’s holding them back is dry weather,” Broadbent, who has been a commodity broker for more than two decades, said in a telephone interview. “If we were to have any kind of rain, it’s not going to grow by big amounts, but it’s going to grow some.”
Going from herd liquidation to an expansion is a slow process, according to Plain, who has studied the industry for three decades. Calves have nine-month gestation periods and take 20 months to reach slaughter weight, he said. Animals typically are fattened on corn until they weigh about 1,200 pounds (544 kilograms), when they are sold to meatpackers.
The calf crop on Jan. 1 probably slid to 34.63 million head, down 1.9 percent from a year earlier, the Bloomberg survey showed. That would be the 18th straight decline, according to Sterling Marketing Inc., an agricultural economic researcher and adviser in Vale, Oregon.
U.S. beef production will total 11.273 million metric tons (24.9 billion pounds) this year, the lowest since 2004 and down 3.7 percent from a year earlier, according to the USDA.
Wendy’s Co. (WEN), the Dublin, Ohio-based fast-food chain, expects most of its commodity inflation to come from beef, Stephen Hare, the chief financial officer, said during a presentation on Jan. 16.
At Ruth’s Hospitality Group Inc. (RUTH), the Heathrow, Florida- based owner of upscale steakhouses, beef costs may climb 10 percent to 15 percent or more, after rising 14 percent last year, Michael O’Donnell, the chief executive officer, said during a presentation on Jan. 16.
“The herds are low,” Kelly Wiesbrock, who helps manage $1.3 billion of assets for Harvest Capital Strategies, a San Francisco-based hedge fund, said in a telephone interview. “The folks that I talk to, restaurant companies and grocery stores, everyone is continuing to see higher beef prices, and they think they’re going to go even higher.”
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