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Costly corn pushes up beef prices
(China Daily)
Updated: 2008-05-28 06:56
Enjoy your next steak, because prices from Shanghai to San Francisco are only going up. The highest corn prices since at least the US Civil War, based on Chicago Board of Trade data, mean US feedlots are losing money on every animal they sell, discouraging production as rising global incomes increase meat consumption and a declining dollar spurs exports. Cattle may rise 13 percent by the end of the year on the Chicago Mercantile Exchange and Brazil's Bolsa de Mercadorias e Futuros, futures contracts show. Not since 1996, when corn reached what was then a record $5 a bushel, have cattle been this cheap relative to their primary source of feed. Cattle are the seventh-worst performer of the 26-member UBS Bloomberg Constant Maturity Commodity Index in the past year, a time when soybeans, oil and copper jumped to records. After adjusting for inflation, cattle are down 27 percent from their 1988 peak. "It's pretty certain that we'll see a decline in domestic supply in the US," Joesley Batista, chief executive officer of JBS SA, the world's biggest beef producer, told reporters in Sao Paulo on May 15. "As a result, we'll have price hikes and improved margins." Production also is dropping or failing to keep pace with demand in China, Brazil and the European Union, mostly for grain-fed beef, analysts and government data show. "We expect meat prices, especially beef prices, to rise this year," said Peter Weeks, chief economist at Meat & Livestock Australia, a trade group in Sydney. "We've already seen big increases in beef prices in China, Russia, India and throughout Southeast Asia." Food inflation The beef rally risks accelerating global food inflation, which has sparked riots from Haiti to Egypt. In the US, food prices will jump 5.5 percent this year, the fastest pace since 1989, according to the US Department of Agriculture. Wholesale choice-grade beef in the US, the world's biggest producer and consumer, will rise 16 percent to a record average of $1.86 a pound next year, the biggest gain since 2003 and the second-largest since 1979, said Len Steiner, a principal at Manchester, New Hampshire-based Steiner Consulting Group, which provides research to the food industry. Steakhouse Partners Inc, operators of 21 steakhouses in California and the Midwest, filed for bankruptcy May 16, citing rising costs for corn-fed beef. Cattle prices haven't kept pace with the grain used to feed the animals. Corn surged to a record $6.39 a bushel on May 9 from $3.6625 a year earlier. Feedlots lost money on animals sold for slaughter the past 11 months, including $139.56 a head in April, compared with a profit of $46.79 a year earlier, said Erica Rosa, an economist at the Livestock Marketing Information Center in Lakewood, Colorado. Losses were a record $169.80 per animal in March, and feedlots may not be profitable until after October, she said. "Higher prices are necessary for survival of the industry," said Douglas Carper, 58, the principal of Omaha, Nebraska-based DEC Capital Inc, which manages or consults for $300 million in commodity investments. "The job of the market now is to create a price high enough that provides the industry with profitability." Corn more than doubled in the past two years as demand for meat boosted feed consumption and US government mandates and subsidies promoted the use of grain-based ethanol. Cattle futures gained just 31 percent over the period, and cash prices rose 16 percent. Rising prices Richard Bond, the chief executive officer of Tyson Foods Inc, the world's largest meat processor, said that the ethanol boom has boosted feed costs so much that consumers should expect higher meat prices. A 1,250-pound steer in the US is worth about 4.2 times the cost of the corn he consumes over five months to reach slaughter weight, down from almost 12 times in December 2005 and the lowest since June 1996. Cattle may not remain cheap for long. Prices jumped 6.5 percent last month, the most since August 2006, and there are signs of reduced supply from US producers. As of May 1, feedlots held 11.1 million head, down 1.4 percent from a year earlier, the government said. Ranchers last year cut the number of young females they held by 3.5 percent to 5.67 million on Jan 1, the second straight annual decline. As the incentive for producers dwindles, demand for US beef exports will jump 14 percent next year, the USDA said. Sales will increase because of a declining dollar, rising global incomes and a relaxation of bans imposed after a case of mad-cow disease in 2003, the USDA said. Agencies (China Daily 05/28/2008 page16) |
