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Live Cattle

cattle analysisIn 2007, the retail value of all US produced beef was $74 billion.  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.  Reliance on corn cattle feed (especially distiller’s dry grain) also makes beef prices susceptible to significant changes in corn prices.

“Feeder Cattle” refers to the young animals (weighing between 650 and 849 pounds) that are sent to feedlots to be finished into “fed” cattle.

Live cattle refers to cattle (cows) that have reached the requisite weight for slaughter. 

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 approximately 24% and 18.5% of US market share, respectively), benefit when beef prices rise.
  • 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.
  • 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.
  • 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.
  • 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.

Four Main Trends & Forces

First, 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 had a few times rising sharply since 2007, as ethanol producers have increased their demand for the commodity (rising oil prices, in turn, have increased demand for ethanol).  Corn is also the main input for many other food products such as unhealthy high fructose corn syrup that are in increasing worldwide demand.  Any long-term, significant increase in feedstuffs prices has the potential to seriously increase beef prices.

Second, Rising Global Demand Pushes Up Beef Prices

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.  As global demand increases, prices are pushed up and meat becomes more expensive.

Third, Cattle Supply Is Dependent On Weather Conditions & Climate Change Shifts

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.

Fourth, 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.

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.

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