Cattle futures rise to record

Cattle futures rallied to a record for the second time this month on signs that rising demand for U.S. beef will erode supplies that are shrinking as ranchers reduce the size of their herds.

Beef output will drop 4.9 percent next year after high feed costs led ranchers to slaughter more breeding cows, the U.S. Department of Agriculture said Oct. 12. The cattle herd totaled 100 million head on July 1, the lowest for that date since at least 1973. Beef exports this year through August were up 27 percent, and meat producers say yesterday’s approval of three U.S. free-trade agreements will boost sales further.

Cattle futures have surged 26 percent in the past year, and the government said last month that retail-beef prices will rise by as much as 9 percent this year, more than any other major food group. Increased costs are squeezing profit margins for restaurant owners including Texas Roadhouse Inc.

“Supply deficits plus improved export demand are the key drivers,” Rich Nelson, the director of research at broker Allendale Inc. in McHenry, Illinois, said in a telephone interview. “There’s a need for beef around the world.”

Cattle futures for December delivery climbed 1 percent to $1.24025 a pound at 12:50 p.m. on the Chicago Mercantile Exchange, after reaching $1.243, the highest ever for a most- active contract. Prices last reached a record on Oct. 3.

Congress approved free-trade agreements yesterday with South Korea, Colombia and Panama, bringing an end to years of stalemate among U.S. lawmakers and offering what supporters said was the biggest opportunity for exporters in decades. The bills go to President Barack Obama for approval.

Export Boost

“We’re going to be moving a lot more beef overseas, and that’s going to be the driver in price here,” Lane Broadbent, a vice president of KIS Futures Inc. in Oklahoma City, said in a telephone interview.

The U.S. Meat Export Federation expects beef shipments to climb by about $517 million, or 13 percent, over the next 15 years as duties on U.S. shipments are phased out. The Korea agreement would cut duties of 40 percent on U.S. beef to zero percent over 15 years, dropping 2.7 percent each year, the Denver-based meat group said.

“We are the only beef-exporting country that has an FTA with Korea,” Erin Borror, an economist at the U.S. Meat Export Federation, said in a telephone interview. “The reduction in the cost of U.S. beef for Korean consumers is going to help us more quickly regain our dominant market share.”

This year, the U.S. has exported 2.76 million pounds of beef and veal to South Korea, up 50 percent from a year earlier, USDA data show. Only Mexico, Canada and Japan have purchased more.

Commodity Rally

Cattle futures also got a boost from the rally in commodities. The Standard & Poor’s GSCI Index of 24 raw materials is headed for its biggest weekly gain in 10 months as Group of 20 leaders began talks on ways to tame Europe’s debt crisis.

The dollar has dropped 2.5 percent this week against six major currencies, the most since May 2009, boosting the appeal of U.S. goods for importing countries.

“We have the cheapest meat in the world because our dollar is cheap enough,” Troy Vetterkind, the owner of Vetterkind Cattle Brokerage in Chicago, said in a telephone interview.

Wholesale-beef prices are up 21 percent in the past year, and the retail cost for consumers reached a record $4.489 a pound in August, USDA data show. “We can expect higher prices yet,” Vetterkind said.

Louisville, Kentucky-based Texas Roadhouse, with more than 350 restaurants across 46 states, raised menu prices twice this year to offset higher beef costs.

Prices also are rising after the worst drought in Texas history parched pastures and forced ranchers to shrink livestock herds.

“We’ve had significant beef-cow liquidation,” the Meat Export Federation’s Borror said. “We expect that contraction to have a bigger impact on beef production in late 2012.”