US beef sector, pinched by costs, cuts production

By Bob Burgdorfer

CHICAGO, Dec 12 (Reuters) - Troubles in the U.S. beef industry, notably losses on beef sales, have caused two of the nation's largest producers to cut production from now through at least the end of the year.

Tight supplies of market-ready cattle and high cattle prices combined with abundant supplies of lower-priced pork and chicken have squeezed U.S. beef companies.

No.3 producer JBS-Swift & Co. and No. 4 producer National Beef Packing Co. said on Wednesday they will cut production.

Tyson Foods Inc. (TSN.N), the No. 1 U.S. beef producer, and Cargill Inc., the No. 2 beef producer, said they have been operating at reduced levels, citing poor market conditions.

Consulting firm HedgersEdge.com said U.S. beef companies, on average, are losing about $45 on every head of cattle they slaughter. With daily slaughter ranging from 125,000 to 130,000 head, that equates to losses of $5.6 million to $5.8 million a day for the industry

Production cutbacks "should have been done months ago," said Rich Nelson, livestock analyst at Allendale Inc.

Supplies of market-ready cattle have been tight for some time due to producers reducing herds because of recent drought in the southern Plains and high feed prices.

Cattle numbers have begun to increase and greater supplies should be available in 2008, but until then supplies should stay tight and prices high, analysts said.

Nelson forecasts it may be March or April of 2008 before supplies increase significantly.

However, because of cutbacks by beef companies, he said cattle prices could drop by the end of this year, possibly to $92 per hundredweight. Cattle traded on Wednesday at $93 to $93.50 in Texas, Oklahoma, and Kansas.

Greeley, Colorado,-based Swift, owned by Brazilian company JBS-Friboi (JBSS3.SA), said beginning next week it will reduce cattle slaughter by about 15,000 head a week.

"We are going to be running at reduced hours in all plants," JBS-Swift spokesman Marco Sampaio told Reuters.

Swift's beef plant in Dumas, Texas, did not operate on Wednesday. That plant can process up to 6,000 cattle a day.

National Beef, based in Kansas City, Mo, said on Wednesday that beginning this week it will reduce cattle slaughter by 10,000 to 15,000 head per week. It has beef plants in Dodge City and Liberal, Kansas.

"Our decision to reduce hours is driven by unfavorable market conditions resulting in unprecedented losses," Tim Klein, National's president and chief operating officer, said in a statement.