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Beef Falls Out of Favor as Americans Chomp on Fewer Hamburgers

Lydia Mulvany and Michael Hirtzer

(Bloomberg) -- For several months, the beef market was hot. But prices got so overheated that now Americans are saying: What else is for dinner?

Wholesale-beef prices, the best proxy for short-term demand since it’s a spot-market measure, are down 10% from a peak in August, and an indicator for burgers has tumbled about 35%. While there’s often a dip at this time of year because of the end of the U.S. summer grilling season, the declines are far more pronounced than usual.

The U.S. Department of Agriculture this month cut its outlook for 2019 per-capita beef consumption and now forecasts that demand will stay stagnant from last year. The earlier rise in prices means that there will like be “tempered interest” in promoting beef to consumers in the coming months, analysts wrote in the Maloni Report, a food-industry publication. Darden Restaurants Inc., the operator of Olive Garden and Longhorn Steakhouse chains, this week blamed beef inflation for cutting into profit margins for its fiscal first quarter.

Beef is likely to drag cattle down with it. That comes after there was already an oversupply of animals after an August fire forced an indefinite closure at a Tyson Foods Inc. processing plant in Kansas, eliminating some spare capacity in U.S. slaughtering.

“We had a major change in underlying economics with the fire,” said Cassandra Fish, a beef-industry consultant and co-owner of meat pricing tool Boxed Beef 4-Ward.

Now, if beef falls out of favor, the cattle glut will likely get worse. Hedge funds seem to be betting on that scenario.

In the week ended Sept. 17, money managers held a net-short position, or the difference between bets on a price increase and wagers on a decline, of 6,885 futures and options, U.S. Commodity Futures Trading Commission data showed Friday. That’s the most bearish ever for the data that starts in 2006.

Short-only holdings rose for a seventh straight week to 65,187, the highest since May 2018.

It’s not all negative. Late Friday, U.S. government data showed fewer-than-expected numbers of cattle moving into feedlots for fattening. That could mean demand could outpace supply, at least in the short term, said Domenic Varricchio, head of the livestock division at Roach Ag. Marketing Ltd. in Boca Raton, Florida.

Meanwhile, African swine fever is raging in China, likely boosting demand globally for protein after the disease killed millions of the nation’s hogs. But so far, at least, China has mainly been turning to Brazil for extra imports, and U.S. producers have been left behind.

“The upside is limited -- perhaps the downside is as well, we’ll just have to see,’’ said Fish, the consultant.

To contact the reporters on this story: Lydia Mulvany in Chicago at lmulvany2@bloomberg.net;Michael Hirtzer in Chicago at mhirtzer@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Millie Munshi, Patrick McKiernan

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