Cattle advances to record as U.S. beef output poised to decline

(c) 2013, Bloomberg News.

CHICAGO — Cattle futures climbed to a record as U.S. beef production is forecast to drop to an 11-year low in 2014 while the improving economy signals increasing meat demand.

U.S. beef output will fall 5.7 percent from 2013 to 24.205 billion pounds (10.98 million metric tons) next year, the lowest since 1993, the Department of Agriculture has forecast. Feedlots added 3.1 percent fewer cattle last month than a year earlier, reducing the total inventory to the second-lowest for Dec. 1 since the USDA started collecting data in 1996, government figures showed on Dec. 20.

The USDA this month boosted its outlook for 2014 per capita beef consumption by 0.6 percent. The American economy will expand 2.6 percent next year from 1.7 percent in 2013, according the median of 78 forecasts compiled by Bloomberg. Higher beef prices will raise costs for retailers from Hormel Foods Corp. to Jack in the Box Inc., while grocery shoppers will pay as much as 3.5 percent more for the meat next year, the government projects.

"You get into an economy that feels good, demand that's going to pick up, and you have tight supplies," Lane Broadbent, the president of KIS Futures Inc. in Oklahoma City, said in a telephone interview. "That makes for a higher market. People are going to have to pay more at the store."

Cattle futures for February delivery rose 0.6 percent to settle at $1.3495 a pound at 1 p.m. on the Chicago Mercantile Exchange, after reaching $1.35275, the highest for a most-active contract since the commodity started trading on the CME in 1964.

Futures have climbed 2 percent this year, heading for the fifth straight annual gain. That would be the longest winning streak on record. Global food prices slumped 4.4 percent in the 12 months through November, while meat increased 0.3 percent, according to the United Nations.

Prices are gaining at a time when most agricultural commodities are slumping after dry weather in Texas in the past three years forced ranchers to trim herds. About 46 percent of the state, the biggest U.S. cattle producer, is in moderate to exceptional drought, according to the U.S. Drought Monitor.

Wholesale beef reached a record $2.1137 a pound on May 23 and is up 1.5 percent this year. Headwinds for Hormel Foods next year include a "high beef input cost," Jeffrey Ettinger, the chief executive officer of the Austin, Minn.-based meat producer, said on an earnings conference call on Nov. 26.

Feeder-cattle futures for March settlement rose 0.4 percent to $1.678 a pound. Hog prices for February settlement added 0.4 percent to 85.65 cents a pound.

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