CHICAGO Jan 21 Some U.S. beef packers are reaping their best profits in 2 1/2-years after the price for beef that they sell to grocers and restaurants hit historic highs, analysts and economists said.
Margins for beef processors such as Tyson Foods and Cargill Inc will continue to widen as long as they are able to pass on their costs for record-high cattle prices to wholesale buyers, they said.
"This is the time of year when packer margins are always narrowest because of seasonally tight supplies. So, this has been a bit of a pleasant surprise for packers after two weeks of ratcheting up wholesale beef prices," said Jim Robb, director of the Denver-based Livestock Information Center.
On Tuesday, U.S. beef packers, on average, earned an estimated $102.85 per head of cattle processed, according to the Colorado-based analytics firm HedgersEdge.
It was the first time processors saw triple-digit returns since June 2011 at $104.10, said the firm's analyst Bob Wilson.
Beef prices climbed after years of drought in the United States shrunk the herd to its lowest level in more than 60 years. Recently, cattle and beef became increasingly scarce after packing plants shut down during the Christmas and New Year's holidays.
And, retailers were caught short of product while they replenished coolers as colder weather settled in across the U.S. Plains, which slowed down animal weight gains.
In response, packers last week paid up to $144 per hundredweight (cwt) for cattle, an all-time high, feedlot sources said.
Tuesday afternoon's wholesale choice beef price was $239.72 per (cwt), leaping $3.16 from Monday to its ninth consecutive record, according to U.S. Department of Agriculture data.
Select cuts captured their 13th straight record after surging $2.70 in price to $237.15.
It is unprecedented that cash (or slaughter-ready), cattle, beef prices and margins are at current levels, said Don Roose, president of Des Moines-Iowa brokerage U.S. Commodities.
Packers are doing everything in their power to push up beef prices, and it is working in the short term, he said.
"The question becomes whether processors will win the battle, but loose the war. Overall, there is concern about the loss of demand at these price levels, which will be key," Roose said.