Bloomberg News

Beef Supply for Fast-Food Hamburgers May Ebb, Analyst Says

February 05, 2012

(Adds analyst comments starting in seventh paragraph.)

Feb. 3 (Bloomberg) -- The price of cows slaughtered to make fast-food hamburgers may climb in 2012 as supplies shrink, signaling higher costs at McDonald’s Corp. and Wendy’s Co., Global AgriTrends said.

The outlook for more rain this year in the South following a drought may reduce cow slaughter, curbing supplies of lean- grinding beef used in fast-food burgers, Brett Stuart, the co- founder of Global AgriTrends, said today in a conference presentation in Nashville, Tennessee. A rally by the Australian dollar against the U.S. currency makes it “very difficult” to import the meat, he said.

A record drought last year in Texas, the biggest U.S. cattle producer, and rising feed costs prompted ranchers to cull herds as export demand surged. Cattle futures soared to a record last month, and the Livestock Marketing Information Center says retail-beef prices that reached an all-time high on an annual basis in 2011 will keep rising through next year.

“If we kill fewer cattle and have fewer lean-grinding beef supplies, we have to get those supplies somewhere,” said Stuart, who is also a consultant for CattleFax, an industry researcher. “It means we’re going to pressure those prices higher. We’re going to have to hunt harder to keep the fast-food hamburger machine full.”

The spot price of cull cows may rise 14 percent to an annual average of 80 cents a pound in 2012 from 70 cents last year, according to CattleFax. The majority of those animals, known as utility cows, will go toward lean-grinding beef, according to Kevin Good, a senior analyst at CattleFax.

Herd Liquidation

The cow slaughter is forecast to drop by 600,000 head this year with “mild herd liquidation” in some U.S. regions, according to CattleFax.

“The fast-food chains are going to be pressed on input costs on beef,” Stuart said in an interview. “The bottom line is that lean grinding-beef prices could be volatile to the upside this year.”

Peter J. Bensen, the chief financial officer of McDonald’s, the world’s biggest restaurant chain by revenue, said on a conference call with analysts on Jan. 24 that beef costs this year will have “another mid-teens increase.”

McDonald’s is the largest user of beef among U.S. restaurants, according to CattleFax.

Wendy’s ‘Headwind’

Rising commodity costs, especially beef, will continue to be a “headwind” for Wendy’s, Stephen Hare, the chief financial officer, said on a conference call with analysts on Jan. 30. Beef makes up almost 20 percent of Wendy’s food and paper purchases, and beef costs have risen 10 percent in each of the past three years, he said.

Wholesale beef has climbed 6.4 percent in the past year, reaching $1.9707 a pound on Nov. 23, the highest since at least 2004, according to the U.S. Department of Agriculture. Ground beef averaged $2.921 a pound in December, the highest since at least 1984, and boneless-round steak jumped to $4.723 a pound, the highest since at least 1980, Bureau of Labor Statistics data show.

Exports of beef from the U.S., the world’s biggest producer, may increase almost 11 percent this year, Stuart of Denver-based Global AgriTrends said. That compares to the USDA’s forecast of a 0.1 percent drop.

Cattle futures reached $1.29675 a pound on Jan. 25, the highest since the commodity started trading on the Chicago Mercantile Exchange in 1964.

--Editors: Patrick McKiernan, Steve Stroth

To contact the reporter on this story: Elizabeth Campbell in Nashville at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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