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U.S. Beef Prices Advance As Global Buying Increases

published: March 24th 2011
by: Bob Burgdorfer
source: Reuters

The ongoing rise in beef prices has surprised analysts and economists, who say better-than-expected exports to such places as South Korea and Mexico are driving the increases.

Choice-grade beef, the grade preferred by restaurants, cookout enthusiasts, and importers, averaged $189.87 per hundredweight in wholesale markets Tuesday morning. That is up
1.8 percent from a week ago and the highest since October 2003.

"Clearly, beef packers have been able to push prices higher largely because of export demand," said Jim Robb, economist at the Livestock Marketing Information Center.

Beef exports this year have exceeded expectations and prompted the U.S. Agriculture Department earlier this month to raise its 2011 export estimate by 3.5 percent to nearly 2.43 billion lbs. The 2.43 billion lbs is up 5.5 percent from 2010's exports.

Sales to South Korea have been particularly strong as that country needs meat to replace lost production there as it battles foot and mouth disease in its cattle and hogs.

"Our weekly beef sales to South Korea have been the largest since before 2003," said Robb.

Japan was the second largest buyer of U.S. beef last week and U.S. livestock traders predict it will be a leading buyer going forward as it will need to replace food spoiled or damaged in the aftermath of the earthquake.

BEEF COMPANIES BENEFIT

The higher prices have helped beef companies like Cargill Inc, Tyson Foods (TSN.N), and JBS USA(JBSS3.SA), who are operating in the black despite paying record high prices for
cattle.

On Tuesday, the livestock advisory firm HedgersEdge.com estimated beef companies, on average, earned $55.55 on every head of cattle processed into beef. That is up from $11.20 a week earlier.

At a time when demand for beef is strong, supplies are expected to decline.

A USDA report last week showed that as of March 1 there were 5 percent more cattle being fattened for beef production than a year ago. But, analysts have said that supply will quickly decrease to below a year ago in the months ahead because there are fewer young cattle to replace those that are slaughtered.

BEEF PRICES MAY BE NEAR A PEAK

Seasonal factors have helped beef prices.

The onset of spring and warmer weather has consumers buying steaks, filets, and hamburgers for outdoor grills. Each year that buying pushes up beef prices.

That buying may be slowing as high prices curb demand and as supermarkets may be close to having what they need for cookout promotions.

"I would say the beef should be near a peak. I don't see a significant move up from here," said Don Roose, analyst with U.S. Commodities Inc.

Cattle prices have benefited from beef's gains, trading a record high prices. Early this month, cattle in Kansas and Texas traded at $118 per 100 lbs. Prices have since slipped, but remain at historically high levels.