Slaughter cattle in Texas and Kansas set the highest price on record Wednesday when they traded at mostly $132 per hundredweight, the result of a smaller herd and rising beef prices, analysts and economists said.
Cattle prices have been trending higher for several years as droughts and high feed prices have caused producers to pare herds. The $132 paid by beef packers on Wednesday compares with the previous record of $130 during the week ended March 2, 2012, according to analysts and economists.
"There are not enough cattle," University of Missouri livestock economist Ron Plain said of the higher prices.
Packers and feedyards are drawing from a smaller pool of cattle after ranchers downsized the U.S. herd to the smallest in 61 years. Prolonged dryness hurt crops that last summer pushed feed and hay costs to all-time highs.
Higher cattle prices have been good news for feedlots. Those prices and cheaper corn due to a huge U.S. corn harvest, narrowed their losses while offsetting costly feeder cattle.
That chance for profitability has feedlots in better shape to buy yearling cattle for fattening before sale to packers such as Cargill Inc and Tyson Foods Inc.
In September, on average, feedlots lost $34 per head of cattle sold to meat companies. That compares with a loss of $92 in August and extends their streak of losses to 29 months, as calculated by the Livestock Marketing Information Center in Denver, Colo.
Fewer cattle resulted in less meat, lifting the price for choice beef at wholesale on Wednesday morning to $200.68 per cwt, according to U.S. Department of Agriculture data. Wednesday's choice beef value eclipsed the June 18 price of $200.24.
"Beef prices in grocery stores have been at record highs the past two months, which means packers can pay more for cattle," Plain said.
The average retail beef price in August, the latest that is available, was a record $5.39 per lb, surpassing the July record of $5.36, according to the USDA's Economic Research Service.
Rich Nelson, chief strategist for Allendale Inc in McHenry, Illinois, partly attributed the rise in beef prices to grocers and restaurants stocking up after they curbed purchases during the 16-day government shutdown in October, when they feared consumer spending would drop.
"During the shutdown a lot of end users were not buying beef. They were trying to hold back a little bit," said Nelson. "This is all coming together at the start of a big decline in supply, which will last through early second quarter 2014."
PACKER MARGINS SUFFER?
While feedlots are earning profits on cattle, the beef companies that buy them and process them into meat are not, analysts said.
U.S. beef packers on Wednesday were estimated to lose $41.55 per head of cattle, compared with a loss of $48.20 on Tuesday and a loss $43.55 a week ago, according to HedgersEdge.com, a Colorado-based livestock analytics firm.
Elaine Johnson, analyst with CattleHedging.com, said packers may not be losing quite that much money as different purchasing methods may minimize losses.
Also, beef exports and sale of hides and non-meat items, such as internal organs, could help processors mitigate losses, she said.
"If the packer truly is absolutely getting crushed on hismargin, he is going to cutback his kills," Johnson said.