Cattle Futures Prices Rise as Animal Supply Dwindle in US

Cattle futures prices rose as animal supplies dwindled in the U.S. and global beef demand climbed, boosting meat costs for restaurants including Sonic Corp. (SONC), a hamburger chain.

In the U.S., consumers will pay as much as 5 percent more for beef this year, more than other food group except seafood, after the meat rose as much as 10 percent last year, the government has estimated. The cattle herd was the smallest since at least 1973 as of July 1 after a drought in Texas cut supplies. Beef exports surged 25 percent in the 10 months ended Oct. 31 from a year earlier.

Rising global demand and the shrinking herd in the U.S., the world’s largest beef producer, spurred a 12 percent increase in cattle futures last year, the fifth-biggest gain among components in the Standard & Poor’s GSCI Spot Index of 24 raw materials. Retail beef reached an all-time high in November, signaling higher costs for Oklahoma City-based Sonic and Ruth’s Hospitality Group Inc. (RUTH), a steakhouse owner.

“Of all the commodities, the cattle are one that you really are going to have over time tighter supplies,” Don Roose, the president of U.S. Commodities Inc., said in a telephone interview from West Des Moines, Iowa. “The demand has been pretty strong on the export front.”

Cattle futures for April delivery climbed 0.9 percent to close at $1.264 a pound at 1 p.m. on the Chicago Mercantile Exchange. After the settlement, the price reached $1.2645 in electronic trading, the highest for a most-active contract since the commodity began trading on the CME in 1964.

Beef-export sales in the four weeks ended Jan. 5 climbed 19 percent from a year earlier, according to the U.S. Department of Agriculture. Retail prices rose to a record $4.504 a pound in November, the most-recent government data show.

Beef is a “challenge” for Ruth’s Hospitality Group, the Heathrow, Florida-based owner of upscale steakhouses, Chief Financial Officer Arne Haak said yesterday in a presentation. Sonic, a drive-in chain, said that beef was among its “primary cost drivers” in the quarter ended Nov. 30.

Meatpackers slaughtered 512,000 head of cattle this week through yesterday, up 4.1 percent from a year earlier, USDA data show. Beef processors seeking spot deliveries paid $1.2366 a pound on average for the animals this week, up 2.1 percent from last week.

“The packers are still going to want to buy cattle,” Lane Broadbent, a vice president at KIS Futures Inc. in Oklahoma City, said in a telephone interview. “It looks like the sellers have got the upper hand here. It’s been pretty spectacular that we’ve had demand show up like we’ve had.”

Feeder-cattle futures for March settlement gained 0.4 percent to $1.52375 a pound on the CME. Earlier, the price reached a record $1.52775.

Feedlots buy year-old animals that weigh 500 pounds (227 kilograms) to 800 pounds, called feeders. The cattle are fattened on corn for about four to five months until they weigh about 1,200 pounds, when they are sold to meatpackers.

“Feedlots, as they’re buying new replacements, they’re finding sharply lower supplies and are paying sharply higher prices,” Rich Nelson, the director of research at Allendale Inc. in McHenry, Illinois, said in a telephone interview. “This supply issue is now showing up, and we have to deal with it.”

Hog futures for April settlement rose 0.5 percent to 87.05 cents a pound in Chicago. Earlier, the price reached 87.525 cents, the highest for the most-active contract since Dec. 9.

source: bloomberg.com

Category: cattle futures, cattle prices, global beef demand, hog futures, Info Commodity