Cattle Rally to Record, Signal Higher Beef Costs for McDonald’s
January 25, 2012, 7:51 AM ESTBy Elizabeth Campbell
Jan. 24 (Bloomberg) -- Cattle prices surged to a record for the sixth time this month on mounting signs that demand for U.S. beef will exceed output, eroding inventories and signaling higher costs for restaurants including McDonald’s Corp.
Consumer costs for U.S. beef increased as much as 10 percent in 2011 and may climb 5 percent this year, the government has estimated. McDonald’s, the world’s largest fast- food restaurant, said today that it expects beef prices to keep rising in 2012. Production may drop 5 percent from a year earlier by the third quarter of 2012, Allendale Inc. said.
Feedlots in the U.S. bought 5.9 percent fewer cattle in December than a year earlier, the biggest drop since May, after a drought reduced available supply in Texas, the top producing state, the government said Jan. 20. The drop means fewer animals will be available for slaughter in coming months, said Paul Beere at Prime Agricultural Consultants Inc.
Buying cattle now is “like putting money in the bank,” Beere, a market adviser, said in a telephone interview from Brookfield, Wisconsin. “The justification for being able to pay these higher prices now is thinking, ‘If we can’t move it, we’ll put it in cold storage, and it’ll be there in six weeks, and the kill numbers are going to be way down by then.’”
Cattle futures for April delivery rose 0.8 percent to close at $1.29175 a pound at 1 p.m. on the Chicago Mercantile Exchange, after reaching $1.2945, the highest for a most-active contract since the commodity began trading on the CME in 1964. Prices are up 6.4 percent this month, heading for the biggest January gain since 2002.
Higher costs
Yesterday, wholesale beef climbed 0.8 percent to $1.8352 a pound, the biggest gain in six weeks, U.S. Department of Agriculture data show. Through midday, the meat had gained 6.3 percent in the past 12 months. Last week, spot prices averaged $1.2564 a pound, up 19 percent from a year earlier, USDA data show.
Retail beef prices climbed to a record $4.572 a pound in December, up 11 percent from a year earlier, USDA data show.
McDonald’s expects “another midteens increase for beef” costs this year, Chief Financial Officer Peter J. Bensen, said in a conference call with analysts today. The Oak Brook, Illinois-based company is the biggest beef user of all U.S. restaurants, according to CattleFax, an industry researcher in Centennial, Colorado.
Feeder-cattle futures for March settlement rose 0.7 percent to close at $1.54875 a pound on the CME. On Jan. 20, the price reached a record $1.55275.
Feedlots buy year-old animals that weigh 500 pounds (227 kilograms) to 800 pounds, called feeders. The cattle are fattened on corn for about four to five months until they weigh about 1,200 pounds, when they are sold to meatpackers.
Hog futures for April settlement slid 0.7 percent to close at 87.85 cents a pound in Chicago. Prices have gained 1.9 percent in the past year.
--With assistance from Leslie Patton and Whitney McFerron in Chicago. Editors: Millie Munshi, Thomas Galatola
To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net
To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net
