Hedge funds and other money managers still are betting on a rally, holding a net-long position of 105,024 futures and options contracts in cattle as of Jan. 7, Commodity Futures Trading Commission data show. That’s the most bullish since October 2011 and up 64 percent from a year earlier.
Shrinking cattle supplies and higher beef prices are increasing bills for consumers, grocers and restaurants. While total global food costs fell 3.4% last year, meat prices climbed 0.5%, according to data from the United Nations. Consumers may pay as much as 3.5% more for beef this year, the USDA has projected.
Costs for beef at Cracker Barrel Old Country Store Inc., the Lebanon, Tennessee-based operator of 625 restaurants across 42 states, were “up sharply” in the three months ended Nov. 1 from a year earlier, Lawrence E. Hyatt, the chief financial officer, said on an earnings conference call with analysts on Nov. 26.
For McDonald’s, the world’s largest restaurant chain, beef is one of the “biggest impacts on commodity cost” in the U.S., Peter J. Bensen, the chief financial officer, said on an earnings call with analysts on Oct. 21. Texas Roadhouse raised prices in the last two years as the Louisville, Kentucky-based steakhouse chain tries “to fight off what’s been pretty high beef inflation,” Scott Colosi, the company’s president, said yesterday during a presentation to investors in Orlando.
Producers have been slow to boost output even after the run-up in prices. It can take three years to breed a cow and raise its calf to slaughter weight.
Texas rancher Looney, who is 64 and has been in the cattle business his whole life, said his herd is still about 90% below its size from 2005 because of the prolonged dry weather. It will take years for the pastures to come back, even if there is normal rainfall, he said. About 44% of Texas was in still in drought in the week ended Jan. 7, according to the U.S. Drought Monitor.
An unseasonably early storm in the Black Hills region of South Dakota produced as much as 4 feet (1.2 meters) of snow in early October. At least 21,671 South Dakota cattle died because of the blizzard, according to voluntary reports by producers to the state’s animal industry board.
“It has been really, bone-chillingly cold,” said Jodie Anderson, the Pierre, South Dakota-based executive director of the state’s Cattlemen’s Association. “This is a time of year when folks are generally prepared for the cold. From a producer perspective, it just makes everything much more difficult. You have to make sure equipment will start and remain running, and it will take more time. You have to provide additional calories to those animals so they can stay warmer and have adequate nutrition.”
Frigid temperatures may continue to present challenges to ranchers because the recent cold was part of a pattern of extreme weather that occurs every decade or so and has been plaguing the U.S. with temperature swings from mild to freezing for more than a month, said Tom Kines, a meteorologist with AccuWeather Inc. in State College, Pennsylvania. The affected region extends across the upper Midwest into the South and eastward to the Atlantic, he said.
“When you get extreme weather conditions like we saw last week, you’re going to see some cattle not gain weight like they should,” said Lane Broadbent, president of KIS Futures Inc. in Oklahoma City, who has been a commodity broker for more than two decades. “Our supplies are going to be tight, and we’re seeing demand overseas improving too. It looks like it’s going to be a pretty good 2014 for the cattlemen.”
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.