Bloomberg News – August 23, 2012, 6:15 p.m.
Beef output will slump to a nine-year low in 2013 as U.S. drought and high feed costs are leading farmers to trim herds, pushing up prices.
The worst U.S. drought in half a century and record feed prices are spurring farmers to shrink cattle herds to the smallest in two generations, driving beef prices higher.
Beef output will slump to a nine-year low in 2013 after drought damaged pastures from Missouri to Montana, the U.S. Department of Agriculture estimates. The domestic herd is now the smallest since at least 1973, and retail prices reached a record last month, USDA data show. And one analyst estimates cattle futures may rise 8.1% to an all-time high of $1.35 a pound in the next 12 months.
Feedlots are losing $300 a head this month fattening cattle for slaughter, after corn had surged 61% since June 15, University of Missouri data show. JBS, the largest beef producer, fast-food chain Wendy’s Co. and Red Robin International Inc. are among those planning price increases.
“We’ve had a huge liquidation off of pastures,” said Walt Hackney, 74, who buys and sells 250,000 cattle a year in Omaha and has worked in the livestock business for about half a century. “It’s all due to the drought. There’s no grass for them to graze on.”
Beef output in the U.S., the world’s largest producer, will drop 3.9% to 24.58 billion pounds next year, the lowest since 2004, the USDA estimates. The domestic herd across ranches, feedlots and dairies dropped to 97.8 million on July 1, the smallest for the date in at least 39 years, the latest data show.
The domestic price of beef will rise as much as 5% next year, more than any other food group including fruits, cereals and dairy products, the USDA estimates. Retail ground beef averaged $3.085 a pound in July, the highest since at least 1984.
Cattle spend 12 to 18 months eating grass before they are sent to feedlots, where they consume mostly corn for five months until they are fat enough for slaughter. The drought has left pastures in the worst condition since at least 1995, with 59% rated poor or very poor Aug. 19, the government estimates. The corn harvest will drop 13% this year to 10.78 billion bushels, the USDA said Aug. 10.
Prices for hay, the third-biggest domestic crop by value, have also surged. This year’s alfalfa harvest will probably be the smallest since 1953.
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