Cattle disappearing amid drought signals beef rally

Bill Donald, the third-generation owner of Cayuse Livestock Co., sold the calves he raised early last summer and cut purchases of cattle after pastures dried up. The herd grazing his land now is about 85% of normal.

“There’s a huge cattle country that is in need of quite a bit of moisture,” Donald, 60, the former president of the National Cattlemen’s Beef Association, said by telephone from his ranch near Melville, Montana. “It’s going to take a major change in the weather patterns.”

The worst U.S. drought since the 1930s is shrinking a cattle herd that’s already the smallest since 1952 and signaling tighter beef supplies and higher costs for restaurant owners. Chipotle Mexican Grill Inc. says the burrito chain may have to raise prices, while government data show a pound of boneless sirloin steak cost consumers $6.781 on average in December, 10% more than a year earlier.

Domestic beef output will drop to an eight-year low in 2013, and per-capita supplies will be the smallest since at least 1970, the U.S. Department of Agriculture estimates. Cattle futures in Chicago may rally to a record $1.3925 a pound this year, up 7.6% from yesterday’s close, according to the median estimate in a Bloomberg survey of five analysts.

Dry Spell

The herd declined for a sixth straight year as of Jan. 1 to 89.3 million head, the government reported Feb. 1. Even as retail-beef prices jumped to a record in November, the shortage of cattle in Texas forced the shutdown of a plant run by Cargill Inc., one of the three largest U.S. processors.

“This year and next year, there’s no way around smaller production,” said Randy Blach, the chief executive officer of CattleFax, an industry researcher in Centennial, Colorado. “We’ll have record-high average prices for 2013. We’ll see that on retail, wholesale and at the fed-cattle level.”

Cattle futures are down 2.4% this year on the Chicago Mercantile Exchange, after rallying 22% from a nine-month low in April to a record $1.35175 on Jan. 11. The Standard & Poor’s GSCI gauge of 24 raw materials rose 5% since the end of December, and the MSCI All-Country World Index of equities climbed 4.8%. Treasuries lost 1.1%, a Bank of America Corp. index shows.

More than 55% of the contiguous U.S. was in drought as of the week ended Feb. 12, compared with 38% a year earlier, according to the U.S. Drought Monitor. The odds are against the dry spell ending soon, said John Nielsen-Gammon, a state climatologist and a professor at Texas A&M University, in College Station.

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