U.S. consumers, already cringing at high beef prices, can expect even more expensive meat later this year due to the smallest cattle herd in more than 50 years, the chief executive of one of the nation's largest meat companies said on Wednesday.
"We do expect that there is going to be increasing beef prices from the levels we see today," Don Jackson, chief executive of JBS USA, said during a presentation at the Reuters Food and Agriculture Summit.
Supermarket beef prices have been setting records since last September, with the latest monthly record in January at $5.09 per lb, according to the U.S. Agriculture Department.
There appears to be little relief ahead. Jackson and others in the industry expect cattle supplies to drop significantly later this year, which will drive up cattle and beef prices.
Last week cattle traded at $127 per 100 lbs, up nearly 8 percent from $118 a year earlier. In addition, the Chicago cattle futures market indicates prices at $130 or more later this year.
With high gasoline prices straining family budgets, consumers at some point could switch from beef to lower-priced proteins like pork and chicken, but Jackson said that has not happened yet.
"We haven't seen it, at least in a material way," Jackson said. "Chicken was exceptionally cheap, and yet beef demand, pork demand stayed strong. The evidence doesn't support the premise, but again we haven't had beef prices at these levels in the past so maybe there is a threshold level we will begin to see that."
FEWER CATTLE IN SECOND HALF OF 2012
The U.S. cattle supply has slumped due to a years-long drought in the southern U.S. Plains and high feed prices which have forced cattle producers to pare herds.
While the current cattle supply remains adequate, Jackson predicted it will decrease later this year, putting pressure on beef plants in the southern Plains where competition for cattle will be the highest.
"No JBS plant will close," Jackson told the Food and Agriculture Summit in Chicago. However, he said the company's beef plants have been operating at less than 40 hours a week since October.
While JBS may not close a plant, there has been talk in the industry that a beef plant will likely closely because of fewer cattle.
"We have surplus slaughter capacity in the industry," Ron Plain, University of Missouri agriculture economist, told Reuters in a separate interview. "I figure sooner or later somebody will close."
Year-to-date cattle slaughter is down 5.5 percent from 2011 and beef production is down 4.3 percent. For the year, USDA predicts 4.4 percent less beef production.
JBS USA produces beef, pork and chicken, and is a unit of Brazilian meat producer JBS SA, the world's largest meat producer.
It entered the U.S. market in 2007 when it bought beef and pork producer Swift & Co., a year later it bought beef plants from Smithfield Foods Inc. In 2009, it bought majority interest in No. 2 chicken producer Pilgrim's Pride Corp (PPC.N), a stake that increased to 75 percent on Wednesday.
In addition it owns Five Rivers Cattle Feeding LLC, the largest U.S. cattle feeding operation.