March 19, 2011

 

Record beef price further gains in US, high corn costs drive losses

 

 

US feedlots probably bought fewer cattle to fatten for slaughter last month as soaring corn costs led to losses, indicating smaller herds this year and additional gains in already record high beef prices.

 

Feedlot operators purchased about 1.646 million head, down 1.7% from February 2010 and the first year-over-year drop since July, according to a Bloomberg survey of 14 analysts.

 

Rising demand helped send US beef to a record US$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 US hamburger chain, said this month that its beef costs may rise 15% or more this year.

 

"Availability of calves and feeders is a problem, and it will get even worse. 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," said Rich Nelson, the director of research at Allendale Inc. in McHenry, Illinois.

 

Feedlot operators in the US, the world's largest beef producer and the largest exporter, after Brazil, buy year-old cattle that weigh 500 pounds (227 kilogrammes) 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 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% from 2010, Allendale's Nelson said.

 

The higher cost of grain means feedlots without risk- management plans lost about US$6 on each animal sold in February, compared with a US$20 profit a year earlier, said Ron Plain, a livestock economist at the University of Missouri in Columbia.

 

"Feed costs continued to rise. Most cattle feeders were probably surprised by how expensive feed ended up being during the period," Plain said.

 

Even after the price of corn dropped from last month's high of US$7.4425 a bushel on the CBOT, the grain is 73% higher than a year ago, reducing the incentive for feedlots to expand purchases of young cattle. Corn futures for May delivery rose US$0.30, or 4.9%, to US$6.465, the biggest gain in five months.

 

Feedlots may pay US$5.05 to US$5.75 a bushel for corn in the year that began September 1, "up substantially" from the average of US$3.55 a year earlier, Shayle Shagam, a USDA livestock analyst said on February 25. US beef output may drop 1.5%, 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% larger than a year earlier at 11.386 million head, according to survey. Producers probably sold 1.764 million animals to beef plants in February, up 2.8% from a year earlier, analysts said.

 

Including dairy cows, the total US cattle herd on January 1 totalled 92.582 million head, the lowest since 1958, government data showed on January 28. That figure may shrink an additional 1% this year as higher feed costs prompt dairy and beef-cow producers to maintain smaller herds, Shagam said.

 

Wholesale choice-beef prices jumped 22% in the past year to US$1.8779 a pound in the latest record of USDA data. The price of slaughter-ready cattle on the Chicago Mercantile Exchange climbed 19% over the same period, touching a record US$1.18 a pound on March 9.