Cattle Succumb to Commodity Rout in Sign of Cheaper Beef

 
Cattle Succumb to Commodity Rout in Sign of Cheaper Beef

The global rout in commodities finally hit cattle with futures off to the worst start to a year since 1980. The good news: The rout signals that your steak dinner could start costing less soon.

Cattle futures on the Chicago Mercantile Exchange have lost 7.1 percent in January, after touching a record in November and rising 21 percent in 2014, the most in four years. Aggregate open interest is at the lowest in more than five years.

The reversal underscores the diminished outlook for most raw materials, as a slowing global economy and a glut of staples ranging from crude oil to wheat sent the Bloomberg Commodity Index (BCOM) to a 12-year low last week. Cattle have tumbled 12 percent from the all-time high on Nov. 19, with ample supplies of pork and chicken offering consumers a cheaper alternative.

“The cattle market was the only thing that was in a bona fide bull market in the commodity sector,” David Kruse, president of CommStock Investments Inc. in Royal, Iowa, said in a telephone interview Jan. 14. “There’s a general concern about the whole meat complex that goes further into global markets and commodities, that there’s a contagion going on and everything is susceptible to it.”

Beef Prices

Cattle futures for April delivery rose 0.5 percent to $1.51875 a pound at 1:15 p.m. on the CME, after dropping as much as 0.5 percent. The price fell 4.8 percent last week, the most since March 2013.

A shrinking cattle supply spurred a run-up in beef prices in 2014. As of July 1, cattle inventories dropped to the lowest for the date since records began in 1973, according to the U.S. Department of Agriculture.

Retail beefsteak in the U.S. averaged an all-time-high $7.541 a pound last month, capping a 19 percent gain in 2014 that was the biggest since 2003, government data show.

By comparison, boneless chicken breast fell 1.3 percent last month to $3.482 a pound, down from as high as $3.652 in 2013. Pork chops have fallen two straight months, to $4.056 a pound in December.

Sonic Corp., the Oklahoma City-based drive-in restaurant chain, “continued to experience significant cost pressures” from beef last quarter, Chief Financial Officer Stephen Vaughan said on a conference call Jan. 6.

There are signs that those pressures are ebbing. The average price of ground beef in the U.S. fell 1.1 percent in December, the most since October 2013, from a record $4.201 a pound the previous month, according to Labor Department data.

“The big concern is a shaky world economy and much larger pork and poultry supplies,” Doug Houghton, a market analyst at Milwaukee, Wis.-based Brock Associates Inc., said in telephone interview Jan. 16. “There’s great concern about how beef is going to compete.”

Hog futures for April settlement lost 0.6 percent to 74.225 cents a pound on the CME, while feeder-cattle futures for March settlement gained 1.4 percent to $2.053 a pound.

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