Business World

Sunday 25 August 2019

Fattest ever US cattle herd signals end to record beef prices as farmers take the hit

Cattle in the US are bigger than ever because farmers are holding them longer for fattening
Cattle in the US are bigger than ever because farmers are holding them longer for fattening

Linly Lin

Cattle in the US are now the fattest they have ever been, signalling an end to the seven-year run of record beef prices just as losses begin to mount for American feedlot owners.

Tom Fanning, who manages a feedlot herd of 30,000 in Buffalo, Oklahoma, says he loses $100 to $300 (€95 to €285) on each animal he sells to slaughtering plants, even though they are bigger and produce more meat than ever.

It is worse for other producers. On average, industry losses began in December and ballooned to $420 a head this month, the Livestock Marketing Information Centre estimates.

Cattle futures have plunged 23pc from an all-time high a year ago as the US herd began a long-awaited expansion and consumers switched to cheaper chicken and pork. That has squeezed feedlot owners, who buy year-old steers and raise them on a diet of mostly corn for more than four months. To ease the pain, operators like Fanning are taking advantage of ample, low-cost grain supplies by holding cattle for almost a month longer than normal, which means the animals get bigger and generate more revenue.

"It still makes economic sense to put on as many pounds as efficiently as you can" to minimise losses, said Fanning (50) who has been managing Buffalo Feeders LLC for 15 years. His cattle spend about 150 days eating grain before they are sold, about 25 days more than two years ago, adding about four pounds of weight gain per day, he said.

On average last month, the animals weighed 1,390lb (630kg) when sold to beef processors, an all-time high, US Department of Agriculture data show. The 2.6 pc increase over a year earlier was the biggest annual gain in more than a decade.

In Iowa, the largest corn-growing state, some cattle have topped 2,000lb and are being held 30 to 60 days longer than normal, said Ed Greiman, who runs a 2,000-head feedlot in Garner, Iowa.

Heavier cattle are helping to boost domestic beef supplies, which had tumbled and sent retail prices soaring. On November 10, the USDA forecast that fourth-quarter production would rise 1.8pc from a year earlier and that output in 2016 would increase 4.8pc to 24.85 billion pounds, the first gain in six years.

The US cattle herd had shrunk to the smallest since 1952 after a 2012 drought parched pastures and sent corn futures surging to a record. Spurred by the jump in beef, ranchers are showing signs of rebuilding their inventory.

The herd on July 1 was 98.4 million head, up 2pc from a year earlier and the first increase for that time of year since 2006, the USDA reported on July 25. As of November 1, feedlots held more animals for that time of year since 2012 and were growing at the fastest rate in four years, government data show. Prospects for more supply are reducing costs for consumers.

Wholesale-beef prices have dropped 23pc from a record in May and on Monday closed at $2.0279 (€1.91) a pound, a 22-month low, USDA data show. Retail ground beef has dropped for four straight months, the longest slide in five years, to $4.083 a pound, compared with an all-time high of $4.238 in February.

Tyson Foods Inc, the largest US meat processor, said a plunge in cattle prices eroded earnings by $70m in the fiscal fourth quarter.

"After several years of significant beef inflation, we look forward to expecting easing of prices in 2016," Scott M Colosi, the president and chief financial officer for steakhouse restaurant chain Texas Roadhouse Inc, said.

Cheaper beef may boost demand, limiting the decline in prices. The USDA is forecasting that domestic consumption will rise to 55.3lb per person next year, up from in 2015, and that exports will rebound in 2016.

Prices may not drop all that much until warmer weather leads to more outdoor barbeque grilling, starting around April, partly because retailers are slow to pass along savings to their customers, said Altin Kalo, analyst at Steiner Consulting Group in Manchester, New Hampshire.

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