Associated Press
Meat Producers Face Rising Cattle Prices
By LAUREN SHEPHERD 03.20.07, 3:10 PM ET
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A recent rise in cattle prices has left Wall Street analysts worrying meat producers may be in for a lean summer.
High feed costs and bad winter weather have pushed cattle prices up nearly 14 percent since March of last year, according to the U.S. Department of Agriculture.
"It's the highest we've had this year so far," said the department's livestock analyst Joel Greene. The average price for Nebraska steer is $97.33, up from $85.73 in March of last year.
Economists blame the high prices partly on skyrocketing demand for corn, a common ingredient for feed. Corn prices are up more than 90 percent from the same time last year, according to the latest Bureau of Labor Statistics data, mainly due to demand for gasoline-additive ethanol which is made from corn. Corn is now selling at more than $3 per bushel. Last year, the price averaged about $2 per bushel.
As feed prices rise, farmers are less inclined to place their cattle in feed yards. That, in turn, sends production levels down and prices up, said Andrew Gottschalk, owner of HedgersEdge.com, which conducts research on livestock and grain feed markets.
Gottschalk said cattle placements in feed yards have fallen for six consecutive months. At the same time, the industry has had to deal with bad winter weather in key cattle-feeding areas like Texas, Kansas, Nebraska and Iowa.
The weather, Gottschalk said, "reduced feeding performance and ultimately reduced carcass weights."
In other words, cattle are getting skinnier.
And although shedding a few pounds may sound to consumers like the perfect way to begin the summer season, beef producers may not be so happy.
"There's some concern that meat prices will be pushed too high that they will curtail beef demand in the summer months" when demand is typically at its highest, Gottschalk said. "We certainly expect that will be the case."
For beef producers like Tyson Foods Inc. (nyse: TSN - news - people ), Smithfield Foods Inc. (nyse: SFD - news - people ) and Hormel Foods Corp. (nyse: HRL - news - people ), that's not good news.
So far, the higher prices haven't made much of an impact on producers' bottom lines. BMO Capital Markets analyst Kenneth Zaslow said in a recent analyst note on Tyson Foods that the world's largest meat producer has generated a profit so far this quarter.
But Zaslow said, "weather-related displacement of cattle and a tight cattle supply likely will create a challenging environment."
The warnings haven't been lost on Tyson President and Chief Executive Dick Bond. At a Citigroup (nyse: C - news - people ) investor conference last week, Bond said he was optimistic about the company's second quarter results, he said with the recent run-up in cattle prices, "I can't commit myself that all four of our segments will be profitable."
The company's second quarter runs through the end of March.
Tyson shares rose 18 cents to $18.28 in afternoon trading. Smithfield Foods shares gained 23 cents at $28.89 and Hormel shares climbed 13 cents to $36.82. All three trade on the New York Stock Exchange.
Copyright 2007 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed
Meat Producers Face Rising Cattle Prices
By LAUREN SHEPHERD 03.20.07, 3:10 PM ET
Popular Videos
Brewing Gold: Hops from Heaven
Gamblers, Start Your Brackets
Streaming March Madness
Amazingly Shrinking Cars
London Shopping Spree
Related Quotes
C 50.83 + 0.19
HRL 36.88 + 0.01
SFD 29.07 + 0.15
TSN 18.24 - 0.08
TSN 18.24 - 0.08
Most Popular Stories
The World's Most Expensive Cellphones
Should You Do Your Own Taxes?
Getting To No
Hollywood's All Ears
Top Chefs
A recent rise in cattle prices has left Wall Street analysts worrying meat producers may be in for a lean summer.
High feed costs and bad winter weather have pushed cattle prices up nearly 14 percent since March of last year, according to the U.S. Department of Agriculture.
"It's the highest we've had this year so far," said the department's livestock analyst Joel Greene. The average price for Nebraska steer is $97.33, up from $85.73 in March of last year.
Economists blame the high prices partly on skyrocketing demand for corn, a common ingredient for feed. Corn prices are up more than 90 percent from the same time last year, according to the latest Bureau of Labor Statistics data, mainly due to demand for gasoline-additive ethanol which is made from corn. Corn is now selling at more than $3 per bushel. Last year, the price averaged about $2 per bushel.
As feed prices rise, farmers are less inclined to place their cattle in feed yards. That, in turn, sends production levels down and prices up, said Andrew Gottschalk, owner of HedgersEdge.com, which conducts research on livestock and grain feed markets.
Gottschalk said cattle placements in feed yards have fallen for six consecutive months. At the same time, the industry has had to deal with bad winter weather in key cattle-feeding areas like Texas, Kansas, Nebraska and Iowa.
The weather, Gottschalk said, "reduced feeding performance and ultimately reduced carcass weights."
In other words, cattle are getting skinnier.
And although shedding a few pounds may sound to consumers like the perfect way to begin the summer season, beef producers may not be so happy.
"There's some concern that meat prices will be pushed too high that they will curtail beef demand in the summer months" when demand is typically at its highest, Gottschalk said. "We certainly expect that will be the case."
For beef producers like Tyson Foods Inc. (nyse: TSN - news - people ), Smithfield Foods Inc. (nyse: SFD - news - people ) and Hormel Foods Corp. (nyse: HRL - news - people ), that's not good news.
So far, the higher prices haven't made much of an impact on producers' bottom lines. BMO Capital Markets analyst Kenneth Zaslow said in a recent analyst note on Tyson Foods that the world's largest meat producer has generated a profit so far this quarter.
But Zaslow said, "weather-related displacement of cattle and a tight cattle supply likely will create a challenging environment."
The warnings haven't been lost on Tyson President and Chief Executive Dick Bond. At a Citigroup (nyse: C - news - people ) investor conference last week, Bond said he was optimistic about the company's second quarter results, he said with the recent run-up in cattle prices, "I can't commit myself that all four of our segments will be profitable."
The company's second quarter runs through the end of March.
Tyson shares rose 18 cents to $18.28 in afternoon trading. Smithfield Foods shares gained 23 cents at $28.89 and Hormel shares climbed 13 cents to $36.82. All three trade on the New York Stock Exchange.
Copyright 2007 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed