SHRINKING U.S. CATTLE HERD SQUEEZES MEATPACKER PROFITS

By Tom Polansek, Reuters

U.S. cattle producer Brad Kooima declined multiple, escalating bids from meatpackers seeking to buy his livestock to hold out for higher prices.

His bargaining power is a dramatic reversal from three years ago, when cattle were plentiful and Kooima said he went seven weeks without getting a bid as COVID-19 outbreaks shut meat plants, making it difficult to sell livestock.

Now, the U.S. beef cow herd is the smallest since 1962. Drought and high feed costs drove producers to send animals to slaughter instead of keeping them for breeding. Farmers who fatten cattle have gained leverage in sales negotiations over the meatpackers that dominate the market, such as Tyson Foods Inc., Cargill Inc. and JBS USA.

Paying more for cattle cuts into the meatpackers' profitability. They will likely try to pass on costs to customers, charging more for ground beef and steaks at a time of high inflation, analysts said.

Cargill, the world's largest ground beef producer, expects cattle prices will rise further, but it is still a question whether higher beef prices will ruin consumers' appetites, company executives said.

"The unknown factor there is demand: how much will the consumer pay?" said Tom Windish, who oversees Cargill's beef business.

Meat processors are assessing demand, along with cattle supplies and operating margins, to determine how much to run their slaughterhouses.