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WIKI ANALYSIS
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This article describes a commodity traded on a commodities exchange. View articles referencing this commodity. |
This article is about Beef Prices in general. For the specific futures contracts, see the articles on Live Cattle Futures and Feeder Cattle Futures.
In 2007, the retail value of all US produced beef was $74 billion.[1] Beef prices depend in part on the availability and pricing of cattle feed. For instance, heavy droughts often result in the reduction of available hay stocks, so prices drop slightly as more cattle are slaughtered and sent to market. However, this reduces breeding stock, subsequently reducing supply and raising prices in the long term.[2] Reliance on corn cattle feed (especially distiller's dry grain--see DDG under Ethanol Production) also makes beef prices susceptible to significant changes in corn prices.[3]
The chart at left shows spot prices for Live Cattle on the Chicago Mercantile Exchange.
Who benefits from higher beef prices?
- Tyson Foods (TSN), and Brazilian JBS S.A. (SAO:JBSS3), owner of Swift Foods, examples of major public beef protein processors (they hold 24% and 18.5% of US market share, respectively), benefit when beef prices rise.[4][5]
- Smaller, private beef producers and processors, such as Cargill Meat Solutions, with 21% of US market share, and National Beef, with 10.5% of US market share, also benefit when beef prices rise.[6]
- AspenBio Pharma (OTC:APNB), Alpharma (ALO) and other manufacturers of livestock pharmaceuticals benefit from higher demand for cattle, which results in increased demand for the high-yield drugs that AspenBio manufactures.
Who benefits from lower beef prices?
- McDonald's, Burger King, Wendy's, and Carl's Jr. are examples of fast-food, burger-centric chains that purchase extremely large quantities of beef and are highly affected by fluctuations in beef pricing. McDonalds is the largest buyer of domestic beef. [7]
- ConAgra Foods (CAG) and Kraft Foods (KFT) are packaged food producers that also buys large quantities of beef. When beef prices rise, these companies are unable to completely pass on the price increase to consumers.[8]
- Supermarkets such as Wal-Mart Stores (WMT), Safeway (SWY), and Kroger Company (KR) purchase large quantities of fresh and packaged beef who benefit from lower beef prices.
Historical Beef Statistics
Trends and Forces
Increase in Feedstuff Prices Increases the Price of Beef
Beef Prices are heavily dependent on favorable pricing of feedstuffs, such as corn prices and soybeans, as food makes up the majority of the cost of raising livestock. Corn prices have risen sharply since the beginning of 2007 - more than 60% in 2007 and early 2008 - as ethanol producers have increased their demand for the commodity (rising oil prices, in turn, have increased demand for ethanol).[10] Corn is also the main input for many other food products such as high fructose corn syrup that are in increasing worldwide demand - but nonetheless the USDA expects U.S. farmers to plant 8% less corn in 2008, lowering supply and increasing prices.[11] Any long-term, significant increase in feedstuffs prices has the potential to seriously increase beef prices.
Rising Global Demand Pushes Up Beef Prices
In 2007, beef consumption rose at an annual rate of 5% in developing countries.[12] From 1990 to 2007, per capita consumption of meat doubled in China - 1.3 billion people ate twice as much meat as they did before.[13] As global demand increases, prices are pushed up and meat becomes more expensive.
Cattle Supply is Dependent on Weather Conditions
Farmers depend on forage - grass and wheat - to feed cows during the summer and fall. During droughts, not enough forage grows to feed the cattle and farmers are forced to dip into their winter hay reserves to feed their herds. In order to make sure they have enough hay for the winter, farmers send surplus cattle to market, increasing supply in the short term, but reducing breeding stock and decreasing supply in the long term.
Import Bans Decrease Supply and Increase Prices
When health scares, such as cases of mad cow disease, cause the United States to ban cattle imports from other countries, US supply shrinks and beef prices increase. For example, the 2003 ban of Canadian cattle imports decreased US supply by 8% and contributed to a 30% rise in cattle prices.[14]
Beef Industry Market Share
Tyson Foods (TSN) is the largest US producer of beef with 25% of the US market.
Cargill Meat Solutions is the second largest US beef producer with 21% of the US market.
Swift Foods, which is owned by Brazilian meat producer JBS S.A. (SAO:JBSS3), is the third largest US beef producer with 18.5% of the US market.
National Beef is the fourth largest US beef producer with 10.5% of the US market.
Note: Market share data from NWA Online
References
- ↑ U.S. Beef and Cattle Industry: Background Statistics and Information
- ↑ Drought loss expected to reach $30M for six-county region; feds could issue disaster declaration
- ↑ [1] Corn Prices Near Record High, But What About Food Costs?
- ↑ [2] Tyson Foods: Overview
- ↑ [3] Beef Losses Prompt Cutbacks
- ↑ [4] Beef Losses Prompt Cutbacks
- ↑ http://www.breakthechain.org/exclusives/mcbeef.html
- ↑ Chicago Business, "Kraft, Sara Lee face rising beef and pork prices"
- ↑ [5] U.S. Beef and Cattle Industry: Background Statistics and Information
- ↑ [6] National Corn Growers Association Futures Quotes
- ↑ [7]|"USDA Bets on Soy, but Farmers Like Corn"
- ↑ [8] More wealth, more meat. How China's rise spells trouble
- ↑ [9] Meat demand in Asia fuels higher food prices
- ↑ [10]The price of beef becomes hard to swallow
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