August 19, 2011

 

Beef stocks rise amid US' Texas drought

 

 

The worst drought in Texas' history probably forced farmers to sell the most cattle to feedlots since December, paving the way for a meat supply surge in the US that may cut costs for processors such as Tyson Foods Inc.

 

Feedlot operators in the US bought 2.051 million head of cattle last month, up 17% from a year earlier, based on the average of 13 estimates in a Bloomberg survey of analysts. The USDA is scheduled to report inventories at 3 p.m. tomorrow in Washington. Texas is the biggest cattle-producing state.

 

The Texas drought, the worst in more than a century, has spurred a record US$5.2 billion in farm losses, according to a unit of Texas A&M University. Costs to livestock producers may total US$2.06 billion partly as ranchers are forced to sell cattle because parched pastures have boosted feed costs. Rising supply may mean cheaper beef for retailers and restaurants such as Chipotle Mexican Grill Inc. (CMG), which increased menu prices to combat food inflation.

 

"Everybody is looking for a big placement because there isn't any range left anywhere in the southern US," Bob Price, a livestock analyst at North American Risk Management, said by telephone.

 

Rising feedlot placements "casts doubts" that cattle prices can remain high, Price said in a report. He forecast a 24% increase in placements, the second-highest among the analysts surveyed by Bloomberg.

 

Cattle futures, which last week traded within 0.5% of a record US$1.21625 a pound, may drop to US$1.10 by December, said Troy Vetterkind, the owner of Vetterkind Cattle Brokerage. Easing prices may bring relief to beef consumers after the wholesale cost of the meat climbed 13% this year, touching US$1.9196 a pound on April 5, the highest since at least 2002.

 

Much of Texas, Oklahoma and surrounding states are suffering from "exceptional" drought, the most-severe rating giving by the University of Nebraska at Lincoln's US Drought Monitor. The past 10 months have been the driest ever in Texas. Pasture and range conditions were rated "very poor" or "poor" in 96% of the state, USDA data show.

 

In the US, the world's leading beef producer and second- largest exporter, feedlots buy year-old cattle that weigh 500 pounds (227 kilogrammes) to 800 pounds, called feeders. It takes about four or five months on a diet of typically corn before the animals weigh about 1,200 pounds, when they are sold to meatpackers. Brazil is the top shipper.

 

 "When you have an increase in placements, prices will usually come down," said Ann H. Gurkin, an analyst at Richmond, Virginia-based Davenport & Co. who has a "buy" rating on Tyson. Meat-processor "demand is steady for cattle, and exports will remain strong," she said.

 

Cattle futures for October delivery dropped 2.3% to US$1.174 a pound on the Chicago Mercantile Exchange yesterday, the biggest decline since May. The price has surged 22% in the past year as importers increased demand for US beef.

 

In the first half of 2011, US exporters shipped 620,851 tonnes (1.4 billion pounds) of beef, up 25% from 2010, while the value of shipments jumped 40%, the US Meat Export Federation said on Aug. 12.