Bloomberg Businessweek: Beef Herd Tumbles to 40-Year Low After Feed Costs Surge

August 23, 2012

The worst U.S. drought in a half century and record feed prices are spurring farmers to shrink cattle herds to the smallest in two generations, driving beef prices higher.

Beef output will slump to a nine-year low in 2013 after drought damaged pastures from Missouri to Montana, the U.S. Department of Agriculture estimates. The domestic herd is now the smallest since at least 1973, and retail prices reached a record last month, USDA data show. Cattle futures may rise 8.1 percent to an all-time high of $1.35 a pound in Chicago in the next 12 months, said Rich Nelson, the chief strategist at Allendale Inc. who has tracked the market for 15 years.

Feedlots are losing $300 a head this month fattening cattle for slaughter, after corn surged 61 percent since June 15, University of Missouri data show. JBS (JBSS3) SA, the largest beef producer, fast-food chain Wendy’s Co. (WEN) and Red Robin Gourmet Burgers Inc. are among those planning price increases. The USDA expects food inflation of as much as 4 percent in 2013, compared with an average of 3 percent since 2004. A United Nations gauge of global food costs jumped 6.2 percent in July.

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