December 7, 2012

 

 

As rain on grazing fields and corn crops prompts ranchers from Texas to Nebraska to feed animals instead of sending them to slaughter, US cattle prices will jump 20% to a record.

 

Beef output in the world's biggest producing country will slide as much as 6% in 2013 because of reduced processing, JBS SA Chief Executive Officer Wesley Batista said in a November 30 interview from his Sao Paulo, Brazil, headquarters. That compares with a 4.2% drop to 24.6 billion pounds (11.2 million tonnes) forecast by the USDA last month.

 

Record corn and soy prices that followed the worst US drought since 1956 boosted the cost of raising cattle sold to JBS and other major meatpackers, leading ranchers to cull animals. Next year, ranchers probably will rebuild herds and send fewer head to meatpacking plants, creating a shortage of slaughter-ready animals that will boost prices, Batista said.

 

"Lower grain prices mean ranchers will be able to retain cattle for a longer period, reducing the availability of animals for slaughtering," said Batista.

 

The US cattle herd shrank to the smallest since at least 1973 as of July 1 as ranchers culled herds after the dry spell in the Midwest boosted feed costs. Cattle reached a record US$1.32925 a pound on November 23 on the Chicago Mercantile Exchange. Futures are down 1.5% from the record at US$1.31 a pound at 10:24 a.m. on the CME.

 

Retail beef prices in the US rose to US$4.772 a pound in October, according to the USDA. Wholesale choice beef, high-end cuts that include most steaks, rose to a record US$1.9938 a pound on October 24. The price has gained 19% in the past two years as droughts in 2011 and this year scorched grasslands in Texas, the biggest producer of cattle in the US

 

The USDA expects food inflation of as much as 4% in 2013, compared with an average of 3% since 2004. Food costs, including beef, may rise 5-8% next year for the Louisville, Ky.-based steakhouse chain Texas Roadhouse, CEO Wayne Kent Taylor said on a conference call with analysts November 1. Global food costs have jumped 6.5% since the end of June, United Nations data show.

 

JBS, the Sao Paulo-based meatpacker that bought Pilgrim's Pride Corp. in 2009 and Swift & Co. in 2007, expects to be able to pass on the higher cattle prices through to customers, Batista said.

 

The company, which gets 76% of its revenue from American and Australian operations, raised US beef prices 1.1% in the third quarter, according to its earnings report. US and Australian sales rose 3.2% from a year earlier to US$7.19 billion in the quarter.

 

Batista's outlook for higher cattle prices depends on prospects for rain in the US next year after this year's drought, Ryan Turner, a livestock analyst at INTL FCStone Inc. in Kansas City, Mo., said in a telephone interview.

 

The rainy weather prospects may not materialise, said Darrell Holaday, the president of Advanced Market Concepts in Wamego, Kansas. Little rain is forecast for the southern Great Plains, where cattle graze on grass and leaves from wheat plants, Holaday said. With little or no precipitation through the middle of next year, no pasture land would be available in the spring for cattle and corn prices wouldn't fall, he said.

 

Because of high corn costs, feedlots bought 2.18 million head of cattle in October, the lowest for the month at least since the USDA started tracking the figure in 1996. Feedlots probably lost about US$112 a head on cattle sold in October, according to McHenry, Ill.-based Allendale Inc.