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Beef Costs Poised to Rise as Fats Extend Rally

July 31, 2014
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Beef costs are poised to rise further as feeder-cattle futures climbed to cap the longest rally in 37 years amid mounting U.S. supply concerns.

Cattle inventories as of July 1 fell to the lowest for the date since records began in 1973, the U.S. Department of Agriculture data said last week. Gains in consumer spending helped the economy rebound more than forecast in the second quarter, according to government figures today. Retail ground beef and boneless sirloin-steak costs rose to all-time highs in June, Bureau of Labor Statistics data show.

"We’ve never had cattle supplies this tight before with this kind of beef demand," Troy Vetterkind, the owner of Vetterkind Cattle Brokerage in Thorp, Wisconsin, said in a telephone interview. "At some point in time, we’re going to cool things off, but it doesn’t appear to be this week. It’s a historic thing that we’ll probably never see ever again."

Feeder-cattle futures for August settlement rose 0.7 percent to close at $2.23025 a pound on the Chicago Mercantile Exchange. Earlier, the most-active contract reached a record $2.23375. The price climbed for the 10th straight session, the longest rally since March 22, 1977.

This year, wholesale beef has surged 31 percent to a record $2.6303 a pound, while futures jumped 33 percent.

Placements of cattle into feedlots in June trailed year- earlier levels for the fourth straight month, USDA data showed. In 2014, the slaughter of animals as of July 26 dropped 6.9 percent from a year earlier.

Pastures Improve
Pasture conditions improved in the week ended July 27 with 52 percent in good or excellent condition, up from 44 percent in 2013, the USDA said this week. That spurs producers to let cattle graze for longer periods, instead of sending them to feedlots, Vetterkind said. Ranchers are also retaining heifers to rebuild herds, adding to tight supplies, he said.

Cargill Inc., one of the world’s biggest agriculture companies, said today that it will close a Milwaukee beef- processing facility on Aug. 1 amid shrinking supplies "brought about by producers retaining cattle for herd expansion."

"The harsh reality is that the U.S. beef cattle herd is at its lowest level since 1951, with any significant herd expansion being years away," John Keating, the president of Cargill Beef, said in a statement.

On Jan. 31, the USDA reported the herd as of Jan. 1 shrank to the lowest in 63 years.

Feedlot operators typically buy year-old cattle that weigh about 500 pounds (227 kilograms) to 800 pounds, called feeders. The animals are fattened on corn until they weigh about 1,300 pounds, when they are sold to meatpackers.

‘On Fire’
This week, live steers sold for $1.62 a pound on average, up from $1.57 last week, the USDA said.

"The cash market is on fire with no signs of letting up," contributing to the futures rally, Lannie Cohen, the president of Capitol Commodity Services Inc. in Indianapolis, said in a telephone interview.

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