Supply worries send U.S. cattle prices to record highs

Reuters

By Theopolis Waters CHICAGO, Dec 27 (Reuters) - Slaughter cattle prices in the U.S. Plains hit their highest level on record on Friday, the result of a smaller herd that already has driven up beef prices, analysts and economists said.

Friday's $133 to $136 price paid by beef packers surpassed the previous record of mostly $132 in late October, according to analysts and economists.

Fewer cattle will likely cut the supply of beef to retailers, further pushing up prices while squeezing consumers.

Monthly retail price data showed beef last month at a record $5.41 per lb, surpassing the October record of $5.36, according to the USDA's Economic Research Service.

Cattle prices have been trending higher, fueled by years of drought in parts of the country that sent feed and hay costs to all-time highs. In response, producers have reduced the U.S. herd to its lowest level since the early 1950s.

The onset of frigid temperatures, which slowed down animal weight gains, made fewer cattle available for packers such as Tyson Foods and Cargill Inc..

Processors have paid more for cattle despite their poor operating margins. The closure of packing plants over the Christmas and New Year's holidays limits their need for supplies.

A fire that temporarily halted production at Cargill Inc's beef plant in Dodge City, Kansas on Monday gave rise to concern that ranchers and feedlots would be paid less for their cattle in the surrounding area.

Cargill later said it expects the Dodge City facility to resume normal operations as early as Saturday.

"It is apparent that plant is reopening quicker than most of us thought it would. And if you're going to reopen again, you're going to need cattle," said Livestock Marketing Information Center director Jim Robb.

Rich Nelson, Allendale chief strategist said: "I'm very surprised that we've gone up this week. But, this is preparation for the big supply deficit in February and March." He predicted there will be weeks during that period when operations at cattle slaughters could run 8 percent below the level of a year ago.

Based on strong prices for some beef cuts, such as rounds and chucks, retailers are likely gearing up to feature beef in the new year, said Linn Group analyst John Ginzel.

"And two weeks of reduced slaughters, Christmas and New Year's, will mean the beef pipeline is pretty tight," he said.

While feedlots are making profits on cattle, the beef companies that buy them and process them are not, analysts said.

U.S. beef packers on Friday were estimated to lose $73.50 per head of cattle, compared with a loss of $72.55 on Thursday and a loss $43.30 a week ago, according to HedgersEdge.com, a Colorado-based livestock analytics firm.

"This is not surprising to packers because January through March are the tightest months for their margins due to the seasonal decline in supplies," said Robb. "They will try to adapt by slowing down kill days and numbers of hours processing animals."

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