Spend Matters welcomes another guest post from Blair Scott of Mintec.
In the past few weeks, the US has been experiencing some abnormally cold weather. In northern Minnesota temperatures dipped to a quite frankly staggering -42F, colder than some of the daily temperatures on Mars! This severe weather helped push the prices up across many commodity markets, especially the natural gas market. However, in this article I am going to concentrate on the effect on cattle prices.
First, sub-zero temperatures force cattle to expend more energy keeping warm, causing them to shed weight. This means it is harder to get the animals up to slaughter weight. In addition, farmers have been electing to keep heifers for breeding purposes rather than slaughter because feed costs are falling. These two factors have resulted in a drop in production. On January 6, US daily slaughtering was down 13% year-on-year to 110,000 head. This is also 20% down on levels seen the previous week. Not only are production volumes falling, but fuel costs have been rising and the treacherous conditions disrupted the transport and delivery of cattle, particularly in the Midwest.
With demand still strong, these factors have led to beef prices to rise sharply across the board. Prices for select, choice, and CAB grade US wholesale beef in particular are up about 8% month-on-month, hitting record highs.
US beef production in 2014 is set to fall to 33.3m head, down 2% year-on-year. Consequently, prices look likely to continue climbing as the reductions in production should support the market. A lot will depend though on feed prices in 2014. If the US corn crop falls short of estimates this would put downward pressure on the price of calves and see beef prices fall.