US wholesale and retail beef prices were sharply higher last week, although analysts are now starting to question whether recent records highs for boxed beef are sustainable at current levels, given price declines in some competing proteins.

Behind the sharp spike in price is a big shortfall in domestic supply:

• US cattle slaughter for last week was pegged at 597,000 head, down 4.4pc compared to a year ago. The expectation, coming into the northern hemisphere spring, is for both US beef and dairy cow slaughter numbers to be down, on record high calf values and some of the best feed/milk ratios on record. This will tend to limit overall beef supplies going into the spring and underpin beef prices.
• US cattle prices are also at all-time record highs, with cash prices now standing at US$145/cwt, up from $132 four weeks ago.
• Friday’s USDA Cattle on Feed update showed 10.59 million head on feed in US feedlots, 5.4pc lower than a year ago. Lower feed costs and a generally positive margin outlook likely encouraged feedlots to stay aggressive in placing cattle.
• Total beef inventories in the US at the end of December were 438.1 million pounds, 2.8pc lower than the previous month and 5.9pc lower than a year ago.

Part of the reason why US cattle and beef prices have rallied so much in recent weeks is because end-users have been caught-short and are now looking to cover those shorts in a very tight cattle market.

As a result of these trends, US wholesale ground beef prices have spiked, hitting all-time record highs on limited supplies and inelastic retail demand. The sharp rise in wholesale ground beef prices should drive retail ground beef prices higher for the remainder of 2014, analysts said last week.

However demand from both US food service and retail sectors remains a major concern, Steiner Consulting said in its weekly imported beef market report.

As the chart published here shows, for now, US retailers are facing a dramatic increase in the price of retail ground beef.

“The wholesale price of 81CL coarse ground beef has jumped from around $1.89/lb (around A$3.65/kg) in early January to $3.04/lb (around A$5.88/kg) by Wednesday last week,” the Steiner report said.

That represents a 61pc increase in ground beef prices in just 20 days. While it was dramatic, and had caught some US retailers by surprise, it was not completely unprecedented, Steiner said.

A similar situation developed three years ago, when ground beef prices jumped 49pc between early December 2010 and mid-January 2011. The same as today, that jump was driven by tight supplies of US cattle on feed, higher cattle prices and relatively inelastic retailer demand for ground beef.

Steiner Consulting’s view is that the 2011 event might provide some insight as to how long prices may stay around current levels.

“Prices back then stayed at peak levels through mid-February and then drifted lower in March. However, once prices hit the higher plateau, they did not come back to the previous levels, but settled at much higher price levels,” it said.

The current jump in US ground beef prices would eventually show up in the retail cabinet, but not immediately. That was because wholesale ground beef prices are much more volatile, but over time both retail and wholesale prices followed the same trend.

“If anything, we see that retail prices tend to be sticky, in other words, once retailers increase prices they are reluctant to lower them, even as wholesale prices decline,” the Steiner report said. “There have been spikes in wholesale ground beef prices in the past, but retailers have enough margin built in that they will tend to only increase prices incrementally at the meat case. In the short term, this implies that demand from retailers will tend to be somewhat inelastic.”

For US ground beef manufacturers, this should serve as a warning as they prepare for North America’s high-demand spring grilling season.

US domestic lean grinding beef at retail has increased about US20c/lb since early December, in line with the seasonal trend for this time of year. One reason why prices have not jumped even more yet is because domestic cow slaughter has recovered and is currently hovering near year-ago levels.

“The recent surge in dairy prices bears watching, however,” Steiner’s report said. “In part it reflects dry conditions in California but also strong export demand for dairy. The incentives are very strong for US dairy producers to limit slaughter as much as they can, and lower dairy cow slaughter will further limit the number of cows coming to market in the spring and summer.”

At this point, demand for lean imported grinding beef seemed relatively soft, but the expectation was that with domestic lean beef prices high and domestic cattle supplies tight, prices for imported supplies should sustain a firm trend into the spring, Steiner said.

Imported Australian 90CL frozen cow trim was quoted at A473.5c/kg last week, a record for at least the last four years in Aussie dollar terms, and 15pc higher than where it sat this time last year, when prices were already rising sharply.

The price of imported 90CL frozen beef is now as much as US15c below domestic US supply, even more if freight differential to the coast is accounted for. High prices for fat trim have limited some of the US demand for 90CL beef, especially with 95CL beef now trading at more advantageous levels in terms of CL values.