High prices, low demand shutter beef processing facility

In this weekly Commodities Watch column, John T. Barone, president and commodities analyst for Market Vision Inc., offers a snapshot of the state of commodities for restaurants

Both on-feed and off-feed cattle inventories are tight due to two consecutive drought years. December’s USDA cattle report showed feedlot inventories falling 6 percent from a year ago. Fewer cattle foreshadow record-high beef and cattle prices for 2013.

The flip side to high beef and cattle prices is declining demand. Citing both high cattle prices and weaker demand, Cargill announced it will close a large — 4,650 cattle per day — beef processing facility in Plainview, Texas that represents roughly 4 percent of U.S. slaughter capacity. In the short term, the closing will reduce cattle demand.

Cattle futures prices have reacted by dropping from highs of $133.85/cwt on Jan. 3 to $124.95/cwt on Friday. But while the plant closing is bearish for short-term cattle prices, the reduced slaughter capacity means less beef output in 2013, and that’s bullish for medium-to-long term beef prices.

Contact John T. Barone at [email protected] [3].