U.S. Beef Supply At 21-Year Low: Get Ready To Pay Up

Beef Supply at 21-Year Low: Get Ready to Pay Up (Liberty Blitzkrieg, Aug 2, 2013):

I don’t follow the commodity markets as closely as I used to, but the following article related to beef prices really caught my eye. Last year’s drought and consequent spike in grain prices led to negative margins for cattle producers, who subsequently culled their herds. As expected, this has resulted in tighter supply today. We see this evidenced in the fact that retail ground beef prices were up 13% year-over-year in June, and the CEO of Ruth’s Chris mentioned during a recent presentation that they were forced to raise prices in February. While grain prices are much lower today, which should encourage expansion in cattle supply, this process will actually cause even more tightness in the near-term as more animals are set aside for breeding rather than slaughtered.

Don’t worry, you can always just eat the S&P 500.

From Bloomberg:

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. to Ruth’s Chris Steak House.

Production in the U.S. will decline 4.9 percent 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.

Retail ground-beef prices in June were up 13 percent from a year earlier and near a record set in January.

Beef costs for Ruth’s Hospitality Group Inc., the Heathrow, Florida-based steakhouse owner, climbed 17 percent 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.

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 percent 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 percent 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, Illinois. “The market signals are kind of there.”

“You’ve got some years of pretty tight beef supplies,” said John Nalivka, a former U.S. Department of Agriculture economist and the president of commodity researcher Sterling Marketing Inc. in Vale, Oregon. “If herd building starts, then you will really tighten the supply even more.”

Move along. Nothing to see here. Inflation is zero. Bernanke is a genius. Larry Summers is an even bigger genius. Happy days are here again, get excited debt-serfs.

Full article here.

In Liberty,
Mike

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