US meatpackers signal end to record profits in smaller herd beef

The world’s largest meatpackers are signaling an end to record-high beef market profits as the US’s catastrophic drought leads to years of tighter cattle supplies.

Rice for beef rose to an all-time high following the Covid-19 outbreak, which spurred demand for home-cooked meals even as slaughterhouses lost workers to the virus and struggled to keep up, leading to the stocking up cattle supplies on the ranch. Now, extreme weather conditions are reducing grazing land and raising feed costs – forcing ranchers to downsize their herds – and consumers are shying away from higher prices for steaks, in favor of cheaper cuts and alternatives like chicken. According to HedgersEdge LLC, this has squeezed profit margins in the US beef sector to about $137 per head, compared to almost $1,000 a year ago.

JBS SA, the world’s largest meat company, said beef profits declined to a “new normal,” while profits in its US beef segment fell 55%.

“We’re going to have fewer cattle next year,” Andre Nogueira, president of North American operations, said Friday when speaking to investors. “How much less depends on how the drought lasts or not.” About 40% of the land used to grow cattle in the US is currently affected by drought, he said.

JBS rival Tyson Foods Inc. earlier in the week reported a volume decline in beef sales for the first nine months of its fiscal year, while beef prices fell 1.3% in the quarter.

Marfrig Global Foods SA, another Brazil-based beef giant, also sees US consumer beef demand being hurt by inflation. According to Tim Klein, the chief executive officer of National Beef, one of the largest US beef producers, consumers will likely prefer ground beef over grilled cuts for the Labor Day holiday. While overall demand remains good, there is trade from premium to cheaper cuts.

Cattle supply is considered “sufficient” for US beef production capacity in the second quarter, but prices are already rising. Higher costs and lower domestic prices reduced spreads for the overall U.S. beef industry by 22% year over year in the second quarter, according to data from the U.S. Department of Agriculture, cited by Klein during Friday’s Marfrig conference call.

“Profits will come down, but we’ll also see healthy margins for the rest of the year and 2023,” he said.

Bloomberg US meatpackers signal end to record profits in smaller herd beef

Fry Electronics Team

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