U.S. herd small Beef prices rise as U.S. grocers and restaurants stock up following government shutdown
CHICAGO, Ill. (Reuters) — Slaughter cattle in Texas and Kansas set the highest price on record Oct. 23 when they traded at mostly $132 US per hundredweight.
Analysts and economists said it was the result of a smaller herd and rising beef prices.
Canadian cash prices are also high with steers averaging $122.24 per cwt. last week, rivaling the record highs set in early June.
Cattle prices have trended higher for several years as droughts and high feed prices caused producers to pare herds.
The $132 that U.S. packers paid in mid-October compares with the previous record of $130 during the week ended March 2, 2012, according to analysts and economists.
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“There are not enough cattle,” University of Missouri livestock economist Ron Plain said.
Packers and feedlots are drawing from a smaller pool of cattle after ranchers downsized the U.S. herd to the smallest in 61 years. Prolonged dryness hurt crops and pastures, which pushed feed and hay costs to all-time highs last year.
Higher fed cattle prices have helped feedlots.
Those prices, and cheaper corn because of a large U.S. corn harvest, narrowed their losses while offsetting costly feeder cattle.
The chance for profitability has left feedlots in better shape to buy cattle.
U.S. feedlots lost an average of $34 per head in September when it sold cattle to packers.
It compares with a loss of $92 in August and extends their streak of losses to 29 months, as calculated by the Livestock Marketing Information Center in Denver, Colorado.
Fewer cattle resulted in less meat, lifting the price for Choice beef at wholesale in mid-October to more than $200 per cwt., according to U.S. Department of Agriculture data. “Beef prices in grocery stores have been at record highs the past two months, which means packers can pay more for cattle,” Plain said.
The average retail beef price in August, which is the latest that is available, was a record $5.39 per pound, surpassing the record of $5.36 set in July, said the USDA’s Economic Research Service.
Rich Nelson, chief strategist for Allendale Inc., partly attributed the rise in beef prices to grocers and restaurants stocking up after they curbed purchases during the 16-day government shutdown in October, when they feared consumer spending would drop.
“During the shutdown, a lot of end users were not buying beef. They were trying to hold back a little bit,” said Nelson.
“This is all coming together at the start of a big decline in supply, which will last through early second quarter 2014.”
While the situation is helping feedlots, packers are suffering, analysts said.
U.S. beef packers were estimated to be losing more than $41 per head of cattle last week, according to HedgersEdge.com, a Colorado-based livestock analytics firm.
Elaine Johnson, analyst with CattleHedging.com, said packers may not be losing quite that much money because different purchasing methods may minimize losses.
Also, beef exports and sale of hides and non-meat items, such as internal organs, could help processors mitigate losses, she said.
“If the packer truly is absolutely getting crushed on his margin, he is going to cutback his kills,” Johnson said.
