Bloomberg News

Cattle Extend Rally to Record on Tight Beef Supply; Hogs Gain

February 21, 2012

Feb. 17 (Bloomberg) -- Cattle futures rose to an all-time high for the 10th time this year as rising demand for U.S. beef tightens supply and increases costs for restaurants including Chipotle Mexican Grill Inc. Feeder cattle also reached a record and hogs gained.

The U.S. cattle herd as of Jan. 1 was the smallest for that date since 1952, and beef exports surged 21 percent in 2011, government data show. The U.S. Department of Agriculture forecast a 4.1 percent drop in beef output in 2012, boosting the cost of the meat for consumers by as much as 5 percent this year, more than any other food group except seafood.

Global food prices in January rose by the most in 11 months, according to the United Nations. Retail beef last month was the most expensive ever, and wholesale prices through midday are up 14 percent in the past year, boosting costs for retailers including Whole Foods Market Inc., the Austin, Texas-based owner of specialty supermarkets, and Ruth’s Hospitality Group Inc., operator of upscale steakhouses.

“Everyone wants to be bullish on cattle just because of the lower supplies,” Chad Henderson , a market analyst at Prime Agricultural Consultants Inc. in Brookfield, Wisconsin, said in a telephone interview. “That’s where all the bullish enthusiasm comes from.”

Cattle futures for April delivery rose 1 percent to close at $1.309 a pound at 1 p.m. on the Chicago Mercantile Exchange, after reaching $1.31275, the highest for a most-active contract since the commodity started trading on the CME in 1964. The price, up 3.2 percent this week, has gained 7.8 percent in 2012.

Feeder-cattle futures for March settlement gained 1 percent to $1.58425 a pound in Chicago, after reaching a record $1.5905. 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.

‘Especially challenging’

Meatpackers have processed about 607,000 head of cattle this week, down 4.7 percent from the same period a year earlier, according to government data. At midday, wholesale beef was little changed at $1.9022 a pound, the highest since Jan. 5, USDA data show.

Ruth’s Hospitality, based in Heathrow, Florida, projects beef inflation ranging from 5 percent to 8 percent this year, Chief Financial Officer Arne Haak said during an earnings conference call on Feb. 10. Whole Foods has had “sharp cost increases” in the meat, Co-Chief Executive Officer Walter Robb said on an earnings conference call on Feb. 8.

“Beef costs will be especially challenging due to protracted supply shortages, despite recent reductions in grain prices,” John Hartung, the chief financial officer of Chipotle, said on an earnings conference call on Feb. 1.

Hog futures for April settlement rose 0.2 percent to close at 90.375 cents a pound in Chicago. The commodity has gained 7.2 percent this year.

--Editors: Thomas Galatola, Steve Stroth

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


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