Feb. 27 (Bloomberg) -- Cattle and hog futures were poised to extend rallies as ranchers struggle to boost the U.S. cow herd from a 63-year low, while a virus that kills piglets spread, spurring concerns that meat supplies will ebb.
Beef output in the U.S., the world’s top producer, will fall 5.3 percent this year to 24.35 billion pounds (11.04 million metric tons), the lowest since 1994, the Department of Agriculture has forecast. At the start of this year, the cattle herd fell to 87.7 million head, the lowest since 1951, following drought and high feed costs. Porcine epidemic virus has killed more than 4 million pigs, according to an industry group.
This month, the USDA lowered its 2014 forecast for red-meat production and boosted the outlook for cattle and hog costs. Higher meat prices will raise expenses for retailers, while grocery shoppers will pay as much as 3.5 percent more for meat this year, compared with a 1.2 percent increase in 2013, the government projects.
“Total beef production is going to be down, and that’s one of the few commodities that we’re projected to see the supplies tighten this next year,” Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa, said yesterday in a telephone interview. “In hogs and the cattle, the supplies are expected to continue to stay tight all the way into the spring. Funds are piling into the long side.”
Cattle futures for April delivery rose 1.5 percent to settle at $1.44525 a pound yesterday on the Chicago Mercantile Exchange. After the close, the price reached $1.45375, the highest for a most-active contract since the commodity debuted in 1964. Trading more than doubled compared with the 100-day average, according to data compiled by Bloomberg.
Hog futures for April settlement climbed 0.4 percent to $1.01025 a pound yesterday. The commodity reached $1.0165, the highest since April 21, 2011. The price has gained 24 percent in the past 12 months.
Feeder-cattle futures for May settlement rose 0.6 percent to $1.745 a pound. The price reached a record $1.75.
In the week ended Feb. 18, a measure of bullish positions held by hedge funds across 11 agricultural products climbed 19 percent to 573,187 contracts, the highest since October 2012, government data showed on Feb. 21.
Last week, an estimated 539,000 cattle were sent to slaughter, down 5.1 percent from a year earlier, and beef production in the first quarter may fall 5.6 percent to 5.83 billion pounds, government data showed.
“The first quarter always has the tightest supply,” Rich Nelson, the director of research at Allendale Inc. in McHenry, Illinois, said in a telephone interview. “Packers are still scrambling to see market-ready cattle.”
Retail ground beef averaged $3.467 a pound in January, up 1.8 percent from a year earlier, according to the latest Bureau of Labor Statistics data. Consumers paid $5.033 a pound for boneless round steak last month, the most since at least 1980, government figures show.
Beef inflation for Ruth’s Hospitality Group Inc., the Heathrow, Florida-based steakhouse owner, may accelerate 4 percent to 8 percent in 2014, Chief Financial Officer Arne Haak said on a Feb. 21 conference call. Higher prices of the meat will contribute to a drop in first-quarter earnings, he said.
Hormel Foods Corp., the Austin, Minnesota-based maker of Spam meat spread, said that higher beef and pork costs “pressured” margins in the three months ending Jan. 26.
Pork supplies probably will tighten in the summer because of the piglet virus, Jeffrey Ettinger, the chief executive officer, said on a Feb. 20 conference call. The company’s farm operations and some independent hog suppliers have been affected, he said.
Yesterday, oat futures fell after surging to a record in Chicago, while corn and soybeans reached to the highest since September.
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