8/1/2013 5:30 PM ET|
Burger costs rise with beef supply at 21-year low
Surging feed costs spurred ranchers to cut herds, leading to higher costs for buyers and record prices for consumers.
U.S. beef production is plunging to a 21-year low after surging feed costs spurred ranchers to cut herds, signaling record prices for consumers and higher costs for buyers from McDonald's Corp. (MCD) to Ruth's Chris Steak House.
Production in the U.S. will decline 4.9% to 10.93 million metric tons in 2014, retreating for a fourth year, the government says. The herd on July 1 was the smallest for that date since at least 1973, according to the average of four analyst estimates compiled by Bloomberg. The most-active cattle futures will rise 6% to $1.33 a pound next year, a level last seen in February, the median of nine forecasts shows.
Ranchers still haven't recovered from last year's drought that sent grain costs to a record and spurred them to slaughter more cattle. While feed costs are now slumping as U.S. farms prepare to reap the biggest corn crop ever, it takes more than two years to raise enough animals to expand supply. Retail ground-beef prices in June were up 13% from a year earlier and near a record set in January.
"The drought has really affected the cow herd," said Tucker Hughes, a 65-year-old rancher in Stanford, Mont., who predicted the number of animals he retains for breeding may drop as much as 20% over the next two years. "Some people had to downsize their herds. When you get these droughts, you have to reduce your numbers."
Traders are anticipating that this year's 5.1% drop in futures to $1.25525 a pound on the Chicago Mercantile Exchange will reverse. Their prediction would take prices close to the record of $1.35175 reached Jan. 11. Futures averaged about $1.249 since the start of January, heading for the highest-ever annual level.
The Standard & Poor's GSCI Agriculture Index of eight commodities fell 17% this year, and the MSCI All-Country World Index of equities rose 10%. Treasuries lost 2.6%, the Bloomberg U.S. Treasury Bond Index shows.
McDonald's, the world's largest restaurant chain, probably will pay 2.5% to 3.5% more for beef this year, according to Jack Russo, a St. Louis-based analyst at Edward Jones & Co. That's more than the forecast 1.5% to 2.5% increase in total commodity costs that Chief Financial Officer Peter Bensen predicted on a July 22 conference call.
While the Oak Brook, Ill.-based company will consider charging more for food, competition and price-sensitive consumers mean "we have less pricing power in 2013 versus a year ago," Bensen said.
Wholesale beef prices dropped 12% since reaching a record $2.1137 a pound on May 23, as the acceleration in slaughtering boosted supply, government data show. Prices probably will exceed that peak next year, said Ron Plain, a livestock economist at the University of Missouri in Columbia.
Global meat prices rose 2.1% in June, the most in nine months, while the overall cost of food dropped 0.9% to the lowest since February, United Nations data show. Retail ground beef averaged $3.382 a pound in June, the second-most ever behind the record of $3.407 in January, Bureau of Labor Statistics data show. Prices will top the record next year, said Steve Meyer, president of Paragon Economics in Adel, Iowa. The government estimates consumers will pay as much as 3.5% more for beef in 2014.
Beef costs for Ruth's Hospitality Group Inc. (RUTH), the Heathrow, Fla.-based steakhouse owner, climbed 17% over two years, Chief Financial Officer Arne Haak said during a presentation on June 25. The restaurant raised its prices in February. Next year and 2015 will still be tough because of the lack of supply, Chief Executive Officer Michael O'Donnell said in a presentation June 18.
Higher prices are curbing demand, with U.S. beef shipments tracked by the government down 2% this year through May. The dollar's rally to a three-year high in July is also eroding the appeal of U.S. exports and China and Russia are restricting meat with ractopamine, a feed additive that some U.S. producers use to increase lean muscle.
Cheaper feed and the easing drought conditions in most places may encourage ranchers to expand. Corn futures on the Chicago Board of Trade are now 44% lower than the record reached in August. The USDA rated 44 percent of pasture and rangeland in good or excellent condition in the week ended July 28, compared with 17% a year earlier.
"There's an awful lot of people wanting to expand," said Steve Foglesong, 56, who raises 9,000 head of cattle and farms 1,800 acres of corn and soybeans about 65 miles southwest of Peoria, Ill. "The market signals are kind of there."
VIDEO ON MSN MONEY
I want my BEEF with all the 'so-called' animal fat? I want my bacon, and I save the bacon grease to fry other foods in.
I live in Northern Wisconsin. In the winter, with high winds and sub-zero temps, animal fat is ENERGY. Oh, I forgot... I walk. I don't have a vehicle, and don't want one at the cost of registration, insurance and fuel? To drive 300 miles a year?
I'm 66 years old, and remember the farm I grew up on. We heated the farmhouse with the kitchen wood stove and a coal-fired pot-belly in the living room. The bathroom was a shack out along the fence line? My grandfather always said 'Rabbit is good, but fry it in bacon fat or starve'.
If all the 'cold' you ever do is to run the car to start it, and then back inside? YOU can live on your veggie diet. My favorite winter food is bacon and beans...
Actually, a pound of hamburger, 1/2 pound of bacon, one diced medium onion and a large can of B&M baked beans. Tastes really good, has a lot of protein, has that dreaded animal fat... I get several meals out of it? And, cold, it makes a really good sandwich!
People are so spoiled today? As a kid I routinely ran a 4 mile paper route on a bike in -30 degree temps. I got up at 5am, did the paper route (about 2 hours), got home to eat breakfast, and then walked a mile to school!
THANX OBAMA! HE'S ON VIDEO YEARS BEFORE HE WAS ELECTED SAYING THAT PRICES
WOULD SKYROCKET IF HE PUSHED HIS GREEN AGENDA AND HEY HE FING DID IT! YOU
OBAMA VOTING MORONS! NOT ONCE BUT TWICE! AT LEAST MOST OF YOUR ARE ALSO
SUFFERING AT THE GROCERY AND GAS PUMPS AND ANYWHERE YOU GO! ENJOY!
AND HE'S PUSHING FOR MORE ETHENOL IN OUR FUEL!!! WHICH WILL NOT ONLY MAKE
FOOD MORE EXPENSIVE IT WILL RUIN OUR OIL AND GAS ENGINES!!! WHY? SO WE ALL
HAVE TO BUY THOSE FING TOXIC BATTERY EXPENSIVE PIECE OF CRAP ELECTRIC CARS?
NOW THAT'S FING EVIL!
The working tax payer has had to take beef off his plate because the price of beef has soared beyond reasonable.
However, the folks getting free food from food stamps is still buying beef and they are buying the best quality beef.
Don't believe it? Stand at a grocery check-out counter and see who is buying beef and how they are paying for it.
INFLATION raises it's ugly head...
Wait until the losers that want to make a career of mopping floors at fast food restaurants get a healthy raise. If that occurs, something’s got to give and it will be either a dramatic rise in fast food prices or a drastic reduction in jobs at fast food establishments. If they do get this large raise they’re demanding the end result will realistically be some combination of the aforementioned.
These people want to work a lifetime in fast food restaurants performing menial, and mindlessly repetitive tasks yet demand to be paid far above what the job is worth. Have they no motivation or self respect? We already know they are indicative of the Obama support base, the stupider, the better.
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[BRIEFING.COM] There hasn't been a shortage of headlines for market participants to digest today. Most of them have gone down pretty easy, too.
Geopolitical concerns have ebbed for the time being, earnings results continue to be mostly better than expected, and today's economic data revealed that inflation pressures remain in check while existing home sales rose for the third straight month and topped an annual pace of 5.00 mln for the first time since October 2013.
There was ... More
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