Cattle disappearing amid drought signals beef rally

Compounding Tightness

The USDA reported the number of young, female cattle for beef-cow replacement rose 1.9% to 5.361 million at the start of this year. That means fewer animals are being sent to slaughtering plants, compounding tight supplies until calves reach full size more than two years from now.

“I’ve never seen the herd decrease this much in my lifetime,” said Joe Leathers, 55, who is the general manager of 6666 Ranch in Guthrie, Texas. “The cattle prices will be good because of the low numbers to come for years to come.”

Cattle sold for immediate delivery at slaughterhouses may average $1.26 a pound this year, up 2.4% from 2012, and cash prices for a 750-pound steers sold to feedlots may average $1.55 a pound, up 5.8%, according to CattleFax. Calf prices will average $1.75, up 4.8%.

Beef costs continue to be under “a lot of pressure” and are unlikely to ease for a couple years, Guy Constant, chief financial officer of Brinker International Inc., the owner of Chili’s and Maggiano’s dining chains, said on an earnings call on Jan. 22. Most of the Dallas, Texas-based chain’s higher commodity costs come from beef.

‘Cost Pressures’

The increase in food prices makes it “more likely” that Chipotle, the Denver-based burrito chain, will have to raise menu prices, Chief Financial Officer John Hartung said on an earnings conference call with analysts on Feb. 5.

Texas Roadhouse Inc. projects higher commodity costs this year, mostly because of increased spending on beef by the Louisville, Kentucky-based chain, according to Chief Financial Officer G. Price Cooper.

“We are facing some cost pressures,” Cooper said during a presentation at an industry conference in Miami on Jan. 16. “In 2013, we’re looking at 6% to 7% commodity inflation because of our focus on beef.” Cooper said the company has locked in the majority of their beef needs for the year.

Domestic supplies are also constrained by rising overseas demand, especially from Asian markets. Exports, including variety meats, will grow 3.5% this year to 1.17 million metric tons, valued at a record $6 billion or more, according to estimates from the U.S. Meat Export Federation in Denver.

Japan Reopens

Japan has eased restrictions on imported meat from animals younger than 30 months, which will help boost demand, said Philip Seng, the federation’s chief executive. South Korea bought $582 million of American beef in 2012, according to the federation.

Pete Bonds said a lack of water and feed since the spring of 2011 has forced him to move animals from Bonds Ranch in Texas, the biggest cattle-producing state, to other states with better conditions.

“This whole thing is dependent on rain, and nobody can tell with 100% certainty what’s going to happen,” said the 60-year-old Bonds, who has several thousand cattle in Saginaw, Texas, as well as in Georgia, Oklahoma, Mississippi, New Mexico and Kansas. “If you don’t have water, you can’t run cattle. If we continue to see extremely dry weather, we will see more contraction.”

Bloomberg News

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