U.S. Cattle Herd Shrinking to 63-Year Low Means Record Beef Cost

Three years after the worst dry spell on record for Texas, fourth-generation rancher Stayton Weldon still doesn’t have enough water for his 300 cattle near Cuero, about 89 miles (143 kilometers) southeast of San Antonio. Dry grass on his 2,600 acres (1,052 hectares) has no nutrition. He has lost 22 cows and two bulls in the past year.

“We need rain -- bad,” the 75-year-old Weldon said, looking at animals scraping at patchy grass on land that his family has been on since 1856. “We’ve got tremendous drought problems. It cuts your herd size down because people have to sell off to provide for the cattle that are left.”

The cattle herd in the U.S., the world’s largest beef producer, probably fell to the smallest in 63 years, a Bloomberg survey showed. More than 80 percent of Texas, the biggest producing state, is still abnormally dry, and ranchers such as Weldon are struggling to recover. Fewer cattle will mean production in the $85 billion beef industry drops to a 20-year low in 2014, the U.S. Department of Agriculture said. Retail costs for the meat are at an all-time high, government data show.

Cattle futures rose 4.4 percent this month and touched $1.432 a pound on Jan. 22, the highest since trading began on the Chicago Mercantile Exchange in 1964. The Standard & Poor’s GSCI gauge of 24 raw materials dropped 0.9 percent in 2014, and the MSCI All-Country World Index of equities declined 3.6 percent. The Bloomberg Dollar Index, a gauge against 10 major trading partners, climbed 1.1 percent, while the Bloomberg Treasury Bond Index rose 1.6 percent.

U.S. Ranchers

U.S. ranchers held 87.99 million head of cattle as of Jan. 1, according to the average estimate of six analysts surveyed by Bloomberg News. That’s the fewest for the date since 1951 and would mark the seventh straight year of contraction. The U.S. Department of Agriculture is scheduled to release its semiannual inventory report at 3 p.m. today.

Extreme weather around the world is wreaking havoc with farmers and threatening global food production.

The period from October 2010 through September 2011 marked the driest 12 months for Texas in records going back to 1895, according to John Nielsen-Gammon, the state’s climatologist. The dry conditions destroyed pastures and caused $3.23 billion of losses in livestock. It was followed the next year by a surge in feed-grain prices during the worst Midwest dry spell since the 1930s. California had its driest year ever in 2013, threatening the state’s cattle herds and dairy cows.

While slaughter has been the main factor driving herds lower, the rates are now slowing as more ranchers hold back cows to increase breeding. About 31.95 million head of cattle were slaughtered in 2013, down 1.5 percent from 2012, the USDA said in a report Jan. 23. The number of cows slaughtered fell 3 percent from a year earlier, USDA data show.

Breeding Cows

The number of young, female cattle held back for breeding probably rose 3.1 percent to 5.53 million head, according to the Bloomberg survey. Beef supplies will keep falling because those heifers aren’t going to the feedlot, said John Nalivka, president of Sterling Marketing Inc., an agricultural economic research and advisory company in Vale, Oregon.

“It’s a real ironic situation that most people wouldn’t think about,” Nalivka said. “At the initiation of herd expansion, you actually reduce your production. That means we’re going to have tight beef supplies for the next two to three years.”

Expanding the U.S. herd is a slow process. Calves have nine-month gestation periods and take 20 months to 22 months to reach slaughter weight, according to Ron Plain of the University of Missouri in Columbia. Animals typically are fattened on corn until they weigh about 1,200 pounds (544 kilograms), when they are sold to meatpackers. The calf crop probably declined to 33.57 million head, down 2.1 percent from a year earlier, the Bloomberg survey showed.

Beef Output

U.S. commercial beef output will drop 5.4 percent this year to 24.32 billion pounds (11.03 million metric tons), the lowest since 1994, the government forecast Jan. 10. That would mark the fourth straight year of declining production.

Americans may pay as much as 4 percent more for beef this year, after prices rose 2 percent in 2013, according to the USDA. That compares with as much as a 3.5 percent gain projected for overall food costs. The price of all-fresh retail beef climbed to a record $5.036 a pound in December, USDA data show. While global food costs tracked by the United Nations declined 3.4 percent in 2013, meat prices increased 0.5 percent.

While corn, the main ingredient in livestock feed, dropped 49 percent since reaching a record $8.49 a bushel in August 2012, prices are still 25 percent higher than the average of the past two decades.

Texas Roadhouse

Texas Roadhouse Inc., the Louisville, Kentucky-based steakhouse chain, raised prices in the last two years, trying “to fight off” beef inflation, Scott Colosi, the company’s president, said Jan. 13 during an investor presentation.

For beef, “the supply side remains tight,” said Jim Robb, the director of the Livestock Marketing Information Center in Denver, which is funded by the industry, universities and government. “On a year-over-year basis, we’ll set record wholesale-beef prices, record retail-beef prices and record-high cattle prices.”

To contact the reporters on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net; Alan Bjerga in Washington at abjerga@bloomberg.net

To contact the editor responsible for this story: Millie Munshi at mmunshi@bloomberg.net