Livestock prices failed to keep pace with third-quarter
rallies of as much as 40 percent for corn and wheat, as too much
rain and heat eroded U.S. yields and drought hurt crops in
Russia and Europe. Cattle futures rose 11 percent in the period
and hogs dropped 8.3 percent.
+------------------------------------------------------------------------------+
Corn Crunch Means Costliest Beef in Quarter Century (Update3)
2010-10-11 21:14:18.728 GMT
(Updates corn price in sixth paragraph and share
percentages in 20th and 21st paragraphs.)
By Whitney McFerron and Elizabeth Campbell
Oct. 11 (Bloomberg) -- Meat prices are poised to extend a
14 percent rally this year that drove U.S. retail costs to the
highest levels since the 1980s as surging corn futures prevent
livestock producers from expanding their herds.
The U.S. cattle herd in July was the smallest since 1973
and the number of breeding hogs last month was near the lowest
ever, government data show. Corn futures jumped to a two-year
high today and the price of the main feed ingredient is more
than 70 percent above the 10-year average.
U.S. per-capita beef supplies next year will be the lowest
since 1952 and pork the smallest since 1976, industry researcher
CattleFax said. Hog futures will rise 14 percent by July and
cattle may gain 3.6 percent by April, according to a Bloomberg
survey of analysts. Wendy's/Arby's Group Inc., the maker of the
1,360-calorie Baconator Triple burger, and CKE Restaurants Inc.,
owner of the Hardee's chain, have warned investors they are
contending with higher commodity costs.
"If grain prices go up, then meat prices are going to have
to move up," said Mark Greenwood, a vice president at AgStar
Financial Services Inc. in Mankato, Minnesota, who oversees $1
billion in loans and leases to the hog industry. Corn costs
"tempered any enthusiasm there was on expansion," he said.
Livestock prices failed to keep pace with third-quarter
rallies of as much as 40 percent for corn and wheat, as too much
rain and heat eroded U.S. yields and drought hurt crops in
Russia and Europe. Cattle futures rose 11 percent in the period
and hogs dropped 8.3 percent.
Corn Soars
Today, corn soared 45 cents, the most allowed by the
Chicago Board of Trade, to reach $5.7325 a bushel, the highest
level since September 2008. On Oct. 8, the U.S. Department of
Agriculture cut its harvest forecast for the second time in two
months. Corn futures for December delivery climbed 27.5 cents,
or 5.2 percent, to close at $5.5575. Soybeans also rose, while
wheat, rice and oats fell.
U.S. cattle feedlots that didn't lock-in corn costs faced
losses in the third quarter, said Ron Plain, an economist at the
University of Missouri in Columbia. Feedlots made money in the
first half after two years of unprofitable markets from surging
feed costs and the global recession, he said.
"Normally, six months of profit will get you to the early
stage of herd expansion," Plain said. Costlier corn "slows
expansion plans," he said.
Hog, Cattle Results
Farmers may earn $5.46 per hog in the first seven months of
2011, according to Steve Meyer, president of Paragon Economics
in Des Moines, Iowa. That's down from his July forecast of $19.
Cattle feedlots lost about $17 a head last month, compared with
profit of $42 in the first half of 2010, Plain said.
Hog futures will advance to 84 cents a pound on the Chicago
Mercantile Exchange by July, up from 73.85 cents on Oct. 8,
according to the average estimate of seven analysts surveyed by
Bloomberg. The top estimates were 90 cents, which would be the
highest level since 1996.
Cattle futures will rise to $1.024 a pound by April, from
98.875 cents on Oct. 8, according to the survey. Goldman Sachs
Group Inc. last month predicted $1.05 as early as December,
which would be the highest since September 2008.
Hogs rose 13 percent this year while cattle advanced 15
percent, as of Oct. 8. The Standard & Poor's GSCI Index of 24
commodities gained 7.5 percent, and the MSCI World Index of
stocks added 3.7 percent. Treasuries returned 9.3 percent this
year as of Oct. 7, according to an index from Bank of America
Merrill Lynch.
Economic Growth
Producers may revive expansion plans should feed costs
drop, said Don Roose, the president of brokerage U.S.
Commodities Inc. in West Des Moines, Iowa. Slower economic
growth also may curb meat demand, Roose said.
U.S. growth will slow to 2.5 percent next year, from 2.7
percent this year, according to the median of as many as 61
economists surveyed by Bloomberg. The cost of living in the U.S.
rose 1.1 percent in the 12 months ended in August, the Labor
Department said Sept. 17. Excluding food and fuel costs, the
core rate increased 0.9 percent each month since April, matching
the smallest gain since 1966. The S&P GSCI Agriculture Index
rose 14 percent this year as of Oct. 8.
Consumers also may buy more poultry to cut costs, said
Lawrence Kane, a market adviser in Yates City, Illinois, for
Stewart-Peterson Group. U.S. retail prices for bone-in chicken
breast were 35 percent cheaper than center-cut, bone-in pork
chops in August and 53 percent less than sirloin steak,
government data show.
Chicken Output
U.S. chicken production may rise 1.8 percent next year to
36.678 billion pounds, the USDA predicts. Pilgrim's Pride Corp.,
with 25 domestic processing plants, said it plans to boost
chicken output 10 percent by 2012.
U.S. retail prices for ground beef and bacon in August were
the highest since the 1980s, and the cost of meat next year will
rise faster than total food inflation, the USDA said Sept. 24.
The wholesale price of U.S. pork bellies, used to make
bacon, surged to a record $1.5725 a pound on Sept. 16,
government data show. In August, retail bacon reached $4.353 a
pound, the highest since at least 1980. Retail ground beef sold
for $2.502 a pound, the most in a quarter century.
'Troublesome' Beef, Bacon
Beef and bacon "are two commodities that have been
troublesome" at Atlanta-based Wendy's/Arby's, Chief Financial
Officer Stephen Hare said at a Sept. 28 investor conference. The
company's commodity costs will rise 2 percent to 3 percent this
year, according to Bob Bertini, a spokesman.
Wendy's/Arby's shares have dropped 3.4 percent this year in
New York trading as analysts cut their profit forecasts. The
company will earn 8 cents a share this year, according to the
mean of eight analyst estimates compiled by Bloomberg. In
January, the mean was 21 cents.
Shares of McDonald's Corp., based in Oak Brook, Illinois,
have jumped 21 percent this year. While the company is the
largest burger seller, it uses more chicken than beef, so
poultry affects costs more, Chief Financial Officer Peter J.
Bensen said on a July 23 conference call. Profit rose 12 percent
in the first six months, and analysts project 6.8 percent growth
in net income this year.
Food costs at Carpinteria, California-based CKE have risen
about one percentage point this year, "primarily due to
increased costs for beef, pork and dairy products," Chief
Executive Officer Andrew F. Puzder said on a conference call
Sept. 29.
Australia, New Zealand
Some U.S. fast-food companies import ground beef from
Australia and New Zealand to offset contractions in U.S. supply,
said Altin Kalo, a commodity analyst for Steiner Consulting
Group in Manchester, New Hampshire. A weakening dollar may make
that too expensive, he said.
Rising overseas demand for U.S. meat also is tightening
domestic supply. U.S. beef exports climbed 17 percent in the
first seven months of the year and imports fell 12 percent,
according to USDA data.
The U.S. per-capita beef supply may drop to 57.6 pounds per
year in 2011, the smallest in 59 years, according to Centennial,
Colorado-based researcher CattleFax. The supply of pork
available to each U.S. consumer will slump to 46.8 pounds
annually, the least in 35 years.
Meat may be in short supply even if farmers decide to
expand because it takes as long as three years to breed a cow
and raise its calf to a weight suitable for slaughter, said
Paragon's Meyer. A hog cycle is about a year, he said.
"It's going to take a long time to recover," said
Steiner's Kalo. "The U.S. consumer is going to have to pay more
for beef, and meat proteins in general."
For Related News and Information:
Top commodity stories: CTOP <GO>
Top agricultural stories: TOP AGR <GO>
--Editors: Patrick McKiernan, Millie Munshi
To contact the reporters on this story:
Whitney McFerron in Chicago at +1-312-443-5939 or
wmcferron1@bloomberg.net;
Elizabeth Campbell in Chicago at +1-312-443-5941 or
ecampbell14@bloomberg.net
To contact the editor responsible for this story:
Steve Stroth at +1-312-443-5931 or
sstroth@bloomberg.net
