Supply worries send U.S. cattle prices to record highs

Fri Dec 27, 2013 8:48pm EST

By Theopolis Waters
    CHICAGO, Dec 27 (Reuters) - Slaughter cattle prices in the
U.S. Plains hit their highest level on record on Friday, the
result of a smaller herd that already has driven up beef prices,
analysts and economists said.
    Friday's $133 to $136 price paid by beef packers surpassed
the previous record of mostly $132 in late October, according to
analysts and economists.
    Fewer cattle will likely cut the supply of beef to
retailers, further pushing up prices while squeezing consumers.
    Monthly retail price data showed beef last month at a record
$5.41 per lb, surpassing the October record of $5.36, according
to the USDA's Economic Research Service.
    Cattle prices have been trending higher, fueled by years of
drought in parts of the country that sent feed and hay costs to
all-time highs. In response, producers have reduced the U.S.
herd to its lowest level since the early 1950s.
    The onset of frigid temperatures, which slowed down animal
weight gains, made fewer cattle available for packers such as
Tyson Foods and Cargill Inc..
    Processors have paid more for cattle despite their poor
operating margins. The closure of packing plants over the
Christmas and New Year's holidays limits their need for
supplies.
    A fire that temporarily halted production at Cargill Inc's
beef plant in Dodge City, Kansas on Monday gave rise to concern
that ranchers and feedlots would be paid less for their cattle
in the surrounding area. 
    Cargill later said it expects the Dodge City facility to 
resume normal operations as early as Saturday. 
    "It is apparent that plant is reopening quicker than most of
us thought it would. And if you're going to reopen again, you're
going to need cattle," said Livestock Marketing Information
Center director Jim Robb. 
    Rich Nelson, Allendale chief strategist said: "I'm very
surprised that we've gone up this week. But, this is preparation
for the big supply deficit in February and March."  
    He predicted there will be weeks during that period when
operations at cattle slaughters could run 8 percent below the
level of a year ago.
    Based on strong prices for some beef cuts, such as rounds
and chucks, retailers are likely gearing up to feature beef in
the new year, said Linn Group analyst John Ginzel.
    "And two weeks of reduced slaughters, Christmas and New
Year's, will mean the beef pipeline is pretty tight," he said.
    While feedlots are making profits on cattle, the beef
companies that buy them and process them are not, analysts said.
    U.S. beef packers on Friday were estimated to lose $73.50
per head of cattle, compared with a loss of $72.55 on Thursday
and a loss $43.30 a week ago, according to HedgersEdge.com, a
Colorado-based livestock analytics firm.
    "This is not surprising to packers because January through
March are the tightest months for their margins due to the
seasonal decline in supplies," said Robb. "They will try to
adapt by slowing down kill days and numbers of hours processing
animals."