U.S. meat packers' losses on beef sales have doubled since a controversy over ammonia-treated scraps dubbed "pink slime" exploded two weeks ago, with margins nearing their lowest in at least 22 years on Thursday, an industry estimate showed.
Margins for meat packers such as Tyson Foods Inc and JBS USA have been in the red for several months, prompting them and other processors to reduce slaughter rates in an effort to shore up beef prices.
Now the industry has faced a backlash over the use of so-called finely textured beef treated with bacteria-killing ammonia as a filler in ground beef and hamburgers, causing prices for cattle in the futures and cash markets to drop.
Margin losses for meat packers, as estimated by livestock marketing advisory service HedgersEdge.com, ballooned to $101 on Thursday for each head of cattle, up 92 percent from losses on Monday estimated at $52.20.
The loss is $1 shy of Jan. 23's $102.05, the biggest deficit since HedgersEdge began keeping such data 22 years ago. The margin is based on wholesale beef prices plus various by-products, minus the cost of market-ready cattle.
While cattle futures prices have fallen 3 percent since early March, beef prices have tumbled more than 7 percent, crushing margins.
"You've got tight fed-cattle supplies, although they are not as tight as people perceive. But the big issue is lack of product movement," said Andy Gottschalk, owner of HedgersEdge.com. U.S. government data showed the cattle slaughter down about 10 percent since December.
"The producer has kept his (cattle) prices steady while the cutout value has dropped from around $1.99 at their peak to about $1.85 last night," he said.
U.S. Department of Agriculture data showed the price of choice grade beef at $184.24 per cwt on Wednesday, down from a recent high of $198.80 on Feb. 29.
The margin losses accelerated as media reports over "pink slime" gathered momentum, causing major supermarket chains to stop selling the filler beef.
This week, Beef Products Inc said it would temporarily halt production of such meat at three of its four plants, while Cargill Inc said it had slowed production of the scraps.
On Thursday, live cattle futures at the Chicago Mercantile Exchange fell to their lowest in 2-1/2 months due in part to concerns over demand sparked by the "pink slime" issue. Prices in the cash market fell $1 per cwt.
Dan Vaught of Vaught Futures Insights in Altus, Arkansas said reduced slaughter by meat packers could result in cattle supplies backing up this spring and in turn weigh on beef prices.
"The simple fact that packers are having to cut their asking price at the wholesale level in order to keep beef moving, strongly suggests we have a real imbalance in the supply-and-demand forces at the moment," Vaught said.