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Cattle Prices Hit Records - WSJ.com
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COMMODITIES
Pricey Beef Is Set to Test Appetites
Smaller Cattle Herds Help Drive Up Prices
By KEL SEY GEE a n d JAC OB BU N GE
Updated Jan. 3, 2014 6:39 p.m. ET
Cattle are rounded up in Florida in July. Prolonged drought in the Great Plains has pushed prices to
records. Bloomberg News
U.S. cattle prices jumped to a record Friday, setting up a fresh hit of sticker shock for consumers at the
grocer's meat counter.
Meatpackers this past week paid the highest cash prices on record for live, slaughter­ready cattle in the
major producing states of Kansas, Nebraska and Texas. That led traders to bid up futures prices, which
already had been rising as retailers increased beef purchases for the holidays and the meat industry
grappled with tight cattle supplies after prolonged drought in parts of the U.S. Great Plains.
Analysts said the higher cattle prices likely will be passed along to U.S. consumers in the next few months.
That would boost fresh­beef prices at retail that surged to a record $5.014 a pound in November, according
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to the U.S. Department of Agriculture, a 26% increase over five years ago.
Higher beef prices could further pinch per­capita U.S. consumption of the red meat, which has slumped 25%
in the past three decades as Americans have turned to less­costly meats or avoided animal protein for
health and other reasons.
Some analysts said they expected consumers, as well as some retailers, to resist the higher costs as they
face continued economic headwinds.
John McDonnell, a 44­year­old who works in auto sales in Chicago, said he is buying more chicken and
pork instead of beef. "The increases have been unbelievable," Mr. McDonnell said Friday as he shopped at a
Mariano's grocery store.
The USDA estimates retail beef prices will climb 2.5% to 3.5% this year. That would be up from about 2%
last year but below some earlier increases, including a 10.2% jump in retail beef prices in 2011.
On Friday, live cattle futures for February delivery, the front­month contract, rose 0.67 cent, or 0.5%, to
$1.363 a pound at the Chicago Mercantile Exchange. The series of record prices this week broke the
previous all­time closing high of $1.345 in October.
U.S. cattle owners are commanding higher prices because supplies have shrunk after roughly three years of
drought in parts of Texas, Kansas and other big cattle­producing states. Many ranchers reduced their herds
in recent years as the searing heat and lack of rain parched pastures and increased the cost of feed,
including hay and corn.
The tight supplies are squeezing companies across the beef­industry supply chain. In recent months, for
instance, feedlot operators, who fatten cattle for slaughter and sell them to meatpackers like Tyson Foods
Inc. and Cargill Inc., have paid ranchers record prices for young beef cattle.
"I think it'll be four to five years before we see a big increase in the amount of feeder cattle out there," said
Jason Swain, assistant general manager for Cimarron Feeders, a cattle feed yard based in Texhoma, Okla.
"We've got to rebuild numbers due to the droughts we've had over the last 10 years."
A big U.S. corn crop in 2013 has cut the cost of the grain
roughly 40% in the past year. For now, that is further reducing
Tight Supplies Drive Cattle Prices to
Records Oct. 25, 2013
the cattle supply, because the lower costs make it more
affordable for ranchers to hold on to cows and breed more calves to try to take advantage of higher prices
for feeder cattle.
Previously
"You look at what calves are bringing at the sale barn, and it's definitely turning some eyes," said Micah
Steinbrink, who raises about 900 head of cattle in Loomis, Neb., and is working to expand his herd. "People
who are in the business already see this as an opportunity to expand if they have the resources to do so."
The nation's cattle herd was the smallest in six decades at the start of 2013, the most recent data available,
according to the USDA.
A big question for cattle traders, meatpackers and grocery chains is whether U.S. consumers will be willing
to pay higher prices for beef. If some turn to other meats, as has occurred in the past, cattle prices could
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retreat.
Last year, some consumers pushed back at higher beef costs.
Beef sales volumes fell 0.7% in the 52 weeks that ended Oct. 26 from a year earlier at 18,000 grocery
stores, supermarkets and other retail outlets tracked by market­research firm Nielsen Co.
Meanwhile, pork volumes grew 3.6%, and chicken volumes rose 0.8%.
Rising prices have turned strip steaks, rib­eyes and other prime cuts of beef into "luxury items," said Brett
Hundley, an analyst with BB&T Capital Markets. "That's always a dangerous component in today's market,
where the consumer remains soft," he said.
Roundy's Supermarkets Inc., a publicly traded grocery­store operator that owns the Mariano's chain, said
Friday it won't push back on its meat suppliers for lower prices but acknowledged it will be difficult to pass
along higher costs to consumers.
Chicken prices have been coming down, which will help Roundy's offset higher beef prices, said spokesman
James Hyland.
"We may have to tweak our [retail] prices, but margins are always a balancing act," he said. "You may put
something on sale, which gives you lower margins, but you make it up with higher [sales] volume."
Analysts said beef prices will stay high for several more years because of the time it takes to bring cattle to
market. Calves take about nine months to deliver and then are fed for 12 to 18 months before slaughter.
Dan Norcini, an independent livestock­futures trader in Coeur d'Alene, Idaho, said he has been surprised to
see the major run­up in cattle prices and is now waiting on the sidelines to bet on futures. He wants to see
how retailers who buy large volumes of beef react to the increase in costs.
"I've never seen prices like this before, in all of my years trading," said Mr. Norcini. "I'm not surprised that we
have a shortage of cattle, but I am surprised [meatpackers] are willing to pay this kind of money."
Mr. Norcini said he wished there was a futures market for U.S. chicken. "If I could be 'long' chickens right
now, that would be the trade of a lifetime," he said.
—Annie Gasparro contributed to this article.
Write to Kelsey Gee at [email protected] and Jacob Bunge at [email protected]
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