January 23, 2014

US beef packers' profits hit 2.5 years record high

After the price for beef that they sell to grocers and restaurants hit historic highs, some US beef packers are reaping their best profits in two and a half years, analysts and economists said.

As long as the costs for record-high cattle prices are passed on to wholesale buyers, margins for beef processors such as Tyson Foods and Cargill Inc. will continue to widen, they said.

"This is the time of year when packer margins are always narrowest because of seasonally tight supplies. So, this has been a bit of a pleasant surprise for packers after two weeks of racketing up wholesale beef prices," said Jim Robb, director of the Denver-based Livestock Information Centre.

According to the Colorado-based analytics firm HedgersEdge, US beef packers, on average, earned an estimated US$102.85 per head of cattle processed. It was the first time processors saw triple-digit returns since June 2011 at US$104.10, said the firm's analyst Bob Wilson.

Beef prices climbed after years of drought in the US shrunk the herd to its lowest level in more than 60 years. Recently, after packing plants shut down during the Christmas and New Year's holidays, cattle and beef became increasingly scarce.

And, retailers were caught short of product while they replenished coolers as colder weather settled in across the US Plains, which slowed down animal weight gains. In response, packers last week paid up to US$144 per hundredweight (cwt) for cattle, an all-time high, feedlot sources said.

Select cuts captured their 13th straight record after surging US$2.70 in price to US$237.15. It is unprecedented that cash (or slaughter-ready), cattle, beef prices and margins are at current levels, said Don Roose, president of Des Moines-Iowa brokerage US Commodities.

Packers are doing everything in their power to push up beef prices, and it is working in the short term, he said.