Cattle disappearing amid drought signals beef rally

Grain Prices

Other agricultural commodities reflect expectations that the weather may be improving. Corn, wheat and soy are all retreating on speculation of more rainfall. Corn has dropped 18% from an all-time high of $8.49 a bushel on Aug. 10.

Cattle in the U.S. are raised from birth on pastures for about a year, when they weigh 500 pounds (227 kilograms) to 800 pounds, and then are sold to feedlots. There, the animals consume mostly corn until they are 1,200 pounds to 1,350 pounds and are sold to slaughtering plants.

It may take years to rebuild the herd, said Donald, the Montana ranch owner.

“The market has given us a strong economic signal, but if you don’t have grass, you just can’t do it,” said Donald, who keeps the calves of his 1,500 cows and buys another 2,000 to 3,000 stocker cattle a year that graze on his pastures until they are big enough to be sold.

Eating Less

With beef prices approaching records, supermarket shoppers are buying less-expensive cuts of meat, according to John Lundeen, a senior executive director of market research for the National Cattlemen’s Beef Association. Reduced demand means any rally in cattle may not last.

Wholesale pork fetched 79.96 cents a pound yesterday, compared with $1.8368 for beef, USDA data show. Wholesale chicken breasts at Georgia docks sold for $1.61 a pound, government data show. U.S. demand for wholesale beef may drop 2%  this year, according to CattleFax.

Prices for consumers are increasing at a time when unemployment is rising. Retail ground beef averaged $3.08 a pound in December, up 5.4% from a year earlier, according to the Bureau of Labor Statistics. All fresh retail-beef prices may average $4.85 a pound this year, a 4% jump from 2012, CattleFax projects.

U.S. gross domestic product unexpectedly shrank in the fourth quarter at a 0.1% annual pace while the jobless rate in January climbed to 7.9% from 7.8%.

Demand Pressure

“Clearly, beef has gone up much faster than its competitors,” Michael Swanson, an agricultural economist at Wells Fargo & Co., said during a presentation at an industry conference in Tampa, Florida, last week. “If you rise at an above-average rate in a flat real-wage-rate environment, you’re going to see the most pressure from demand.”

Even with a smaller herd, livestock sales will grow 2.8% to a record $176.5 billion this year, the USDA said in a report on Feb. 11. Parts of the U.S. may see more normal precipitation in the spring and summer growing season, according to Art Douglas, meteorologist at Creighton University in Omaha, Nebraska.

While the weather may improve, it takes about 30 months to boost beef production, CattleFax’s Blach said. Calves have a nine-month gestation and take about 20 months to reach slaughter weight.

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