Thursday, May 23, 2013
CHICAGO - The worst U.S. drought in a half century and record feed prices are spurring farmers to shrink cattle herds to the smallest in two generations, driving beef prices higher.
A cheeseburger is expected to cost more in 2013, but agriculture officials also predict U.S. consumption of red meat and poultry will fall below 200 pounds per person next year for the first time since 1990.
Staff file photo
Cattle penned in Ramona, Calif., and at ranches across the West and Midwest are being liquidated at a fast rate. “It’s all due to the drought. There’s no grass for them to graze on,” says Walt Hackney, a livestock buyer and seller based in Nebraska.
Bloomberg News photo by Sam Hodgson
Beef output will slump to a nine-year low in 2013, after drought damaged pastures from Missouri to Montana, the U.S. Department of Agriculture estimates.
The domestic herd is now the smallest since at least 1973, and retail prices reached a record last month, USDA data show. Cattle futures may rise 8.5 percent to an all-time high of $1.35 a pound in Chicago in the next 12 months, said Rich Nelson, the chief strategist at Allendale Inc. who has tracked the market for 15 years.
Feedlots are losing $300 a head this month fattening cattle for slaughter, after corn surged 64 percent since June 15, University of Missouri data show.
JBS, the largest beef producer, fast-food chain Wendy's Co. and Red Robin Gourmet Burgers are among those planning price increases.
The USDA expects food inflation of as much as 4 percent in 2013, compared with an average of 3 percent since 2004. A United Nations gauge of global food costs jumped 6.2 percent in July.
"We've had a huge liquidation off of pastures," said Walt Hackney, 74, who buys and sells 250,000 cattle a year in Omaha, Neb., and has worked in the livestock business for about a half century. "It's all due to the drought. There's no grass for them to graze on."
Beef output in the United States, the world's largest producer, will drop 3.9 percent to 24.575 billion pounds (11.147 million metric tons) next year, the lowest since 2004, the USDA estimates. The domestic herd across ranches, feedlots and dairies dropped to 97.8 million head on July 1, the smallest for the date in at least 39 years, the latest data show.
The domestic price of beef will rise as much as 5 percent next year, more than any other food group, including fruits, cereals and dairy products, the USDA estimated on July 25. Pork may increase by 3.5 percent and poultry 4 percent, the agency said.
Retail ground-beef averaged $3.085 a pound in July, the highest since at least 1984, and whole chickens were $1.454 a pound last month, the highest in at least 32 years, according to the Bureau of Labor Statistics.
Cattle spend 12 to 18 months eating grass before they are sent to feedlots, where they consume mostly corn for five months until they are fat enough for slaughter. The drought has left pastures in the worst condition since at least 1995, with 59 percent rated poor or very poor on Aug. 19, the government estimates.
The corn harvest will drop 13 percent this year to 10.779 billion bushels, the USDA said Aug. 10. The grain reached a record $8.49 a bushel in Chicago that day. Prices for hay, the third-biggest domestic crop by value, have also surged.
This year's alfalfa harvest will probably be the smallest since 1953, and the price of meal made from the crop was $334 a ton Wednesday in Kansas City, Mo., up from as low as $239 a year earlier, the USDA estimates.
A faster slaughter may initially drive prices lower. Almost 3.09 million cows were culled in the first half of the year, compared with a 10-year average of 2.8 million, USDA data show.
Demand for exports may slow as a strengthening dollar makes shipments from Australia and Brazil more attractive, David Nelson, an analyst at Rabobank International in Chicago, said in an Aug. 13 report. U.S. exports in the first half were 11 percent smaller than a year earlier, government data show.
U.S. consumption of red meat and poultry will fall below 200 pounds per person next year for the first time since 1990, the USDA predicts.
The expansion in supply probably won't last long because it will "curtail the already limited availability of calves this fall," Goldman Sachs Group Inc. analysts said in a report last month.
"Our U.S. cow-herd population is low, and there's not going to be much adding to the herd with the drought going on," said Henry Beel, 40, who co-owns a 1,200-head cattle business with near Johnstown, Neb.
Beel Brothers has reduced its breeding herd by selling heifers to feedlots, which means "there's going to be a smaller amount of cattle available to the packing plants" next year, he said.
The slide in output may not stop until 2016 or 2017, Rachel J. Johnson, a USDA livestock economist, wrote in an Aug. 16 report. Once the herd starts to expand, it takes more than two years to boost supplies, according to Ron Plain, a livestock economist at the University of Missouri.
Calves have a nine-month gestation period and take about 20 months to reach slaughter weight, he said.