Cheap beef, just in time for holiday burgers

Vegetarians aside, who doesn't like cheap burgers?

Americans celebrating Memorial Day this weekend - the unofficial kickoff to summer, the grilling season - have one more windfall coming their way: the cheapest retail prices for ground beef in two years.

Bumper grain crops have reduced the cost of feeding animals, and cattle ranchers have been expanding their herds. That's good news for consumers, who will see beef prices drop as much as 2 percent this year, as annual production is increasing for the first time since 2010, the U.S. Department of Agriculture predicted.

Hedge funds are betting the lure of low-cost meat will help stimulate demand and help cattle futures rebound.

"We're absolutely at what could be the peak usage season of the year," said Don Close, Rabobank International's St. Louis-based vice president of food and agribusiness research for animal protein. "This year has been somewhat frustrating, just with so much rainy, cold weather, particularly through that East Coast corridor. Expectations are there's a lot of pent-up demand there, once that summer weather actually comes to bear."

After the Fourth of July, Memorial Day is tied with Labor Day for the most popular occasion for barbecuing, according to the Hearth, Patio and Barbecue Association. More than 60 percent of grill owners will fire it up this weekend, the group estimates.

Adding to the excuses to celebrate, it's more than burgers that have gotten cheaper. An index of seven party staples that includes ice cream and potato chips is at the lowest level since August, according to retail prices compiled by Bloomberg News. The measure is down 1.4 percent from this time last year.

It's not just grilling enthusiasts who are benefiting from cheap beef. Taco Bell last month brought back its Beefy Crunch Burrito and the Cheesy Double Beef Burrito, both sold for $1. "Favorable" costs for the meat will last through the rest of 2016, allowing Taco Bell to offer "aggressive" specials, Greg Creed, chief executive officer of its parent company, Yum! Brands Inc., said in an April 21 earnings call.

The gains for beef output mark a reversal of the last several years. A U.S. drought parched pastures and sent feed prices soaring in 2012, forcing producers to cull the national cattle herd to the smallest since the 1950s. Retail ground beef hit an all-time high in February 2015.

The herd numbers have since rebounded, reaching a five-year high at the start of this year. Ample rains this spring have left national pasture conditions the best for this point in the season in six years, USDA data show. Also, making it easier to add to production, corn and soybean prices have declined in the last three years, lowering feed costs.

Cattle futures traded in Chicago reached an almost four-year low in April. Prices have since bounced back 3.1 percent to $1.1745 a pound as of Friday, and money managers are betting the recovery can continue. The net-long position surged 88 percent to 32,633 U.S. futures and options contracts in the week ended last Tuesday, according to Commodity Futures Trading Commission data released three days later. The gain of 15,270 contracts was the biggest since October 2013.

Declining weights for animals headed to slaughter also have boosted cattle futures. Still, consumers don't need to fret. Because retail prices lag wholesale costs, more declines for beef prices are expected, Rabobank's Close said.

There are also signs that there's more meat coming to add to supplies. The number of cattle placed into feedlots in April rose 7.5 percent from a year earlier, USDA data showed Friday. That means rising beef production in four to six months, after the animals are fattened up on a diet of mostly corn.