Shrinking US cattle herd becoming reality

by Meat&Poultry Staff
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Echoing this month’s Meat&Poultry “Industry Outlook” report (Meat&Poultry - January 2012 - p. 26), Bloomberg reported on Jan. 26 that the US cattle herd is looking to be the smallest since 1958, and the ripple effects are expected be felt throughout the food-supply chain, at companies ranging from Tyson Foods to McDonald’s Corp.

According to 10 financial analysts surveyed by Bloomberg, producers held 91.24 million head of cattle as of Jan. 1, reflecting a 1.5 percent decrease from the previous year. As M&P’s beef outlook story notes: “Available beef supplies are set to fall this year to 54.1 lbs. per person, according to US Dept. of Agriculture forecasts. This would be down 3.3 lbs. from 2011’s expected 57.4 lbs. and 2010’s 59.6 lbs. It would be the lowest per capita or disappearance figure in at least 61 years.” The M&P report, written by contributing editor, Steve Kay, goes on to note that the supply shortage in the face of rising demand, is expected to trigger higher wholesale prices for beef in general and it “will be most acutely felt in the ground-beef complex.”

Bloomberg noted that cattle futures surged to $1.29675 per lb. on Jan. 25 on the Chicago Mercantile Exchange, marking a high-water mark for a most-active contract since cattle futures began trading on the CME 48 years ago.

Indeed, Kay’s speculation about the impact on ground beef end users is becoming reality, based on news from McDonald’s that the company is expecting “another mid-teens increase” in beef costs this year, according to its chief financial officer, Peter Bensen during a Jan. 24 earnings conference call. Bloomberg also notes Tyson Foods’ Nov. 21 statement that it expects cattle supplies to drop 1 percent to 2 percent during its fiscal year, which started Oct. 2
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As Kay’s M&P story noted, this comes on the heels of a positive end to fiscal 2010 for some large beef processors. Tyson’s average selling price for all its beef in fiscal 2011 (which ended Oct. 1) was up 16.9 percent from fiscal 2010. Fourth-largest processor National Beef Packing said its average selling price in fiscal 2011 (which ended Aug. 27) was up 16.7 percent, according to Kay.

Perhaps the wild card in the US beef segment for 2012, is whether export demand can be sustained and a big part of that is based on the strength of the US dollar vs. other currencies. According to Kay, global buyers “certainly paid more in 2011. JBS SA, the world’s largest beef exporter, reported last year average export prices from JBS USA (which includes its Australian operations) were up 22.3 percent in its first quarter on the year earlier quarter. Prices were up 21.9 percent in the second quarter and up 19.3 percent in the third quarter.”

He concludes: “What happens at home, however, will be critical to the beef complex this year, as 88 percent of all beef produced is sold within the US.”

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