Parched Plains Means Cheap Burgers for Fourth of July Grilling

(Bloomberg) -- The parched fields at Pete Bonds’ Texas ranch show why burgers are getting so cheap.

A winter dry spell across the southern U.S. Plains left wheat fields and pastures too sparse for grazing, forcing some ranchers to sell cattle to feedlots early. After being fattened on grain for several months, those animals are now arriving at slaughterhouses, boosting meat supplies and helping to keep beef costs subdued.

“We’re seeing a mountain of cattle go through,” said Saginaw-based Bonds, a former president of the Texas and Southwestern Cattle Raisers Association.

That’s good news for anyone firing up the grill on July 4. But be warned: hedge funds are signaling that the cheap prices may not last. Money managers raised their net-long holding on cattle futures by 11 percent to 29,796 futures and options as of June 26, according to data released Friday by the Commodity Futures Trading Commission.

That’s the highest since early April. The figure measures the difference between bets on a price increase and wagers on a decline.

Parched Plains Means Cheap Burgers for Fourth of July Grilling

In addition to cattle, meat supplies are climbing across the board. The U.S. hog herd as of June 1 reached an all-time high, according to government data spanning five decades. Chicken output is poised for a record. The cost of a typical Independence Day cookout is about 1 percent less than last year, according to an annual survey by the American Farm Bureau Federation.

Cattle futures have slumped 12 percent this year amid a swelling U.S. herd. Growing production has also helped suppress wholesale-beef prices to a seasonal two-year low, while costs for trimmings -- a component of hamburgers -- are the cheapest since 2012.

Because of the winter drought, cattle supplies have gotten “bunched” together, said Don Close, a St. Louis-based vice president of food and agriculture research at Rabobank. That means further down the road, supplies could start to tighten, he said.

Meanwhile, American consumers -- and restaurants -- can cheaply enjoy their upcoming holiday.

For Fourth of July, this year’s mid-week timing may be a boon for Kent Black’s barbecue joints in and around Austin, Texas. The largest of his three locations goes through as much as 20,000 pounds (9,071 kilograms) of brisket in a typical week. In anticipation of the added holiday traffic, the restaurant is bringing in a refrigerated trailer to stock as much as 30 percent more beef for customers.

"Historically, the Fourth of July week is kind of the busiest week of the year," Black said by telephone. "That whole week, July 2 through July 9, it’s going to be way above average."

The weather will also continue to be an important factor for ranchers like Bonds. While the drought has subsided some, U.S. pasture ratings are the lowest for this time of year since 2012, and Bonds plans to keep fewer heifers, the young female cattle.

Still, changes in the pace of herd expansion take time to alter meat supplies. The U.S. Department of Agriculture expects domestic beef production to rise 2.1 percent next year.

“We’re going to need some rain this fall,” Bonds said. “Hot, dry wind is just sucking that moisture out of the grass.”

©2018 Bloomberg L.P.