Some herds grew in states unaffected by drought and in areas where there was less pressure to switch to growing crops, Robb of the Livestock Marketing Information Center said. Ranchers would prefer to sell heifers for slaughter at current high prices than hold them for breeding, said Lane Broadbent, a KIS Futures Inc. vice president in Oklahoma City.

Ranchers earned an estimated $93.50 per cow last year, compared with $46.50 in 2010, Robb said. Even as rising profit provided an incentive to expand, that was overwhelmed by the impact of the drought, high grain prices and the potential for better profits in crop production, he said.

Tyson Foods, the biggest U.S. meat processor, projects a “gradual reduction” of 1 percent to 2 percent in supplies of cattle available for slaughter during the fiscal year that began Oct. 2, according to a Nov. 21 statement. Supplies will be “adequate” in regions where the Springdale, Arkansas-based company operates beef plants, it said. Most of those are in the Midwest, according to Gary Mickelson, a company spokesman.

Tyson Foods forecast profitability in its beef unit in the first fiscal quarter, though at a “lower level” than in the preceding quarter, James Lochner, the chief operating officer, said on a conference call with analysts on Nov. 21.

Eoin Treacy's view Feeder cattle broke out of a more than 6-year range in 2010, found support in the region of the upper boundary in May 2011 and continues to post a progression of higher reaction lows; finding support in the region of the 200-day MA on successive occasions. While somewhat overbought in the very short-term, a sustained move below $140 would be required to question medium-term scope for additional upside. Live Cattle has a comparatively similar pattern. (Also see Comment of the Day on June 17th).

In nominal terms, prices have been ranging incrementally higher over the last few decades. However, the inflation adjusted picture is somewhat different. Prices trended lower from 1972 until 1996. The inflation-adjusted price mostly ranged between 1997 and late 2010 and broke upwards in early 2011. It has held the advance since; supporting the view that a new inflation-adjusted uptrend is in place.

The above charts suggest meat processors and restaurant chains are facing a threat to their margins. As with other areas of the food business, they are likely to employ a strategy of selling smaller portions and/or attempting to use commodity price inflation as an excuse for raising prices beyond those required by cost increases.

Beef is Tyson Foods' largest division followed by chicken. The share rallied impressively from the 2008 low but has been largely rangebound since early 2010. It failed to sustain the breakout in December and has returned to test the 200-day MA. An upward dynamic will be required to confirm a return of demand in this area and to offset potential for an additional test of underlying trading.

Hormel Foods is an S&P 500 Dividend Aristocrat yielding 2.04%. The share posted its largest reaction in more than 30 months in July but found support in the region of the 200-day MA and has returned to test the peak near $30. A sustained move above that area would reaffirm the medium-term uptrend.

Among restaurant chains, McDonalds is a US S&P 500 Dividend Aristocrat and yields 2.82%. It is approximately $10 overextended relative to the 200-day MA as it pauses in the region of $100. Some additional consolidation appears likely but a sustained move below the MA would be required to begin to question medium-term uptrend consistency.

Chipotle Mexican Grill has held a progression of higher reaction lows since late 2008. It rallied impressively from the most recent test of its MA in November and is currently somewhat overextended relative to the trend mean. The first clear downward dynamic is likely to signal the onset of the next reversion.

Texas Roadhouse dropped below its 200-day MA in August and ranged just below it until late December, before pushing back above it. It will need to hold above $14 if the medium-term upside is to continue to be given the benefit of the doubt.

Ruth's Chris Steak House failed to hold the breakout from its base in July and pulled back into the range. It broke upwards again this month and is now testing the July peak. A sustained move below $5 would be required to question medium-term scope for continued higher to lateral ranging.