CHICAGO, Ill. (Reuters) —U.S. beef packers are reaping their best profits in 2 1/2 years after beef prices hit historic highs.
Processor margins will continue to widen as long as they are able to pass on their costs for record-high cattle prices to wholesale buyers, analysts 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 ratcheting up wholesale beef prices,” said Jim Robb, director of the Livestock Information Center.
U.S. beef packers earned an average $102.85 US per head of cattle processed in December, according to HedgersEdge.
It was the first time processors saw triple-digit returns since June 2011 at $104.10, said Bob Wilson, the firm’s analyst,.
Beef prices climbed after years of drought in the United States shrunk the herd to its lowest level in more than 60 years. Cattle and beef became increasingly scarce recently after packing plants shut down during the Christmas and New Year’s holidays.
As well, retailers were caught short of product while they replenished coolers as colder weather settled in across the U.S. Plains, which slowed down animal weight gains.
In response, packers paid up to $144 per hundredweight for cattle in January, which was an all-time high, feedlot sources said.
The prices and margins are unprecedented, said Don Roose, president of U.S. Commodities.
Packers are doing everything in their power to push up beef prices, and it is working in the short term, he said.
“The question becomes whether processors will win the battle but lose the war,” Roose said.
“Overall, there is concern about the loss of demand at these price levels, which will be key.”