What are the reasons behind an increasingly expensive steak? From farmers to processors to supermarkets, who’s having a harder time? Who is more anxious? When and how will consumers start to “downgrade”? This article describes what is happening. Ranchers are downsizing their herds due to high costs, and the nation’s beef supply is shrinking – which could drive the price of all-you-can-eat meals like burgers and steaks to record highs.
Prices for burgers and steaks are currently near all-time highs and are set to get even more expensive. The culprit is the rapidly dwindling supply of cattle. In the U.S., years of persistent dry weather have pushed up the cost of raising cattle, and the impact of the New Crown epidemic and the overall increase in the cost of raising cattle has prompted ranchers to sell off their animals, with the number of cattle dropping to its lowest level in nearly a decade. By 2024, U.S. beef production will drop by more than 2 billion pounds, the largest annual decline since 1979, according to the U.S. Department of Agriculture. With the cost of raising cattle rising in almost every area, ranchers say they’ve run out of reasons to replace the animals they send to slaughter, let alone expand their herds. “We’re spending $1 million and only making $4,000.” Ryan Stromberger, a rancher outside Ogallala in southwestern Nebraska who has two other feedlots, said.
Consumers should not expect grocery expenses to decrease at this time because of the diminished beef supply. Analysts at Rabobank, an agricultural lender, said the price of ground beef has risen more than 20 percent since 2020 and could hit an all-time high by this summer’s peak barbecue season, with an estimated average retail price of $5.33 per pound this year. Analysts say that price could rise at least another 15 to 25 cents by 2024. Some consumers are choosing to buy different cuts of beef or buy beef only once in a while. While shopping at a Mariano’s grocery store in Chicago recently, Jeff Espiritu, 44, chose to buy a discounted beef shoulder for stir-frying instead of buying other parts of beef that are more expensive. He said he was buying more pork while scouting for cheaper beef. “Even at the discounted price, it’s expensive.”
According to grocery store executives, beef prices are testing Americans’ appetite for beef, which continues to grow despite years of talk about health issues, concerns about the impact of cattle ranching on the climate and the increased availability of plant-based protein products, said Kroger CEO Rodney McMullen.” There’s no question that when beef reaches a certain price, people’s consumption behavior will change with it.” When steaks start to reach a certain price, he said, people may just buy them only on special days instead of once a week.
1. causing losses
Ranchers usually raise calves and sell them to feedlots through auctions. Feedlots raise the cattle and sell them to meat processing companies, which slaughter the animals and sell the meat to food companies, retailers, or restaurants. A disruption in one part of the supply chain can paralyze the entire system.20 Early in 2020, the New Crown epidemic struck, sickening tens of thousands of workers and forcing meat-processing companies to temporarily close their plants. At one point, daily capacity of U.S. cattle and hog farms dropped by 45 percent, according to the U.S. Department of Agriculture. According to meat processors, it will be difficult for them to recruit enough people over the next year to get their plants back to full operation.
Ranchers are keeping cattle longer than usual, which increases costs. Meat processors say they are getting less money for their cattle when they can get them to meat processing plants because of the oversupply. Meat companies say beef prices on the consumer side have climbed to all-time highs because processors can’t supply enough inventory. Last year, beef supplies rebounded as the industry’s hiring situation began to improve. Meat companies have offered higher pay and other benefits to workers, while automating more operational processes at their plants.
For ranchers, cattle prices increased, but at a time when inflation pushed up the price of fuel, feed and equipment. Ranchers and beef industry officials say severe droughts in many major cattle-producing states such as Nebraska, Oklahoma and Texas have depleted grazing pastures, requiring ranches to spend money on supplemental feeds such as alfalfa and hay – which have risen in price by an average of more than 20 percent from the previous year.
Ranchers in the wetter parts of the U.S. fared better, with feedlots having their most profitable month in April since April 2017, according to Iowa State University estimates. But Nebraska, Kansas, Oklahoma and Texas are still experiencing some drought, which has pushed up feed prices and constrained ranch profitability. Weather conditions have improved this summer, and some ranchers may thus keep more livestock.
In contrast, pork producers have been expanding their supply in recent years and now have an oversupply amid weak consumer demand. Chicken is the most consumed source of protein in the U.S., but the beef market is twice the size of the chicken market. In the 52 weeks ending April 23, the beef market was more than $30 billion, according to Circana. Unlike beef, neither pork nor chicken have been seriously affected by the drought.
Nebraska rancher Stromberger said earlier this year he was only making about $20 per cow. As cattle prices have risen, he’s now making $80 per head. That profit is nowhere near the $500 to $600 per head he made around 2014, the last time cattle numbers declined. High costs have squeezed his profits.
Everything from the medicines and vitamins he needs to keep his cattle healthy, to labor, farm equipment and higher interest rates, he said. “The cost of raising cattle is taking a toll on us.”
2. herd shrinkage
As the cost of raising cattle rises, some ranchers are choosing to downsize their herds. It’s a big gamble, because when market conditions turn around, the rebuilding process can be slow: It takes about 18 to 22 months to raise beef cattle to market weight, compared to six weeks for chickens and about six months for hogs.
The U.S. Department of Agriculture’s annual cattle report, released in January, puts the total U.S. cattle supply, including dairy cows, at about 89.3 million head this year, a 3 percent decline from 2022. The number of cattle used to breed beef cattle is at its lowest level in 60 years.
Beef production is expected to be down more than 5 percent from last year, the first year-over-year decline since 2015, according to the USDA’s forecast. According to the USDA, a cow costs a rancher about $700 or more to operate before it’s sold to a feedlot – and will only bring in an average of $12 per cow by 2022.
Rancher Lisa Roberts has more than 200 cows on her ranch in Shiner, Texas, and another ranch 30 miles away. She says the wells and creeks near her ranch, which are the main source of water for her livestock, haven’t dried up yet, but many of her neighbors aren’t so lucky. Last summer, ranchers stood in long lines in front of the barns where they sold their livestock, something she had never seen before. “Some people get tired of the hassle and just quit.” She said, “For the average cattleman, it’s just a break-even business.”
In 2022, she sold 157 heifers and seven cows from one of her ranches to a feedlot for $115,000. She spent about $90,000 on the operation, netting $25,000, but that’s not counting the cost of buying livestock and repairing the barns. That left her with a loss in 2021. Analysts say some ranchers also take on a lot of debt to finance their operations, but as interest rates rise, the cost of their debt could be even higher.
3. Crisis felt at restaurants
Katherine Fogertey, chief financial officer of burger chain Shake Shack, told analysts in May of this year, “If you ask me where the biggest uncertainty is on the cost side, I think it’s beef.” As ranchers downsize their herds, meat processors such as Tyson Foods, Cargill, JBS and National Beef have had to pay higher prices to ensure they have enough beef supplies to meet the demands of grocery store and restaurant customers. About 85 percent of U.S. beef is processed by these companies. In recent weeks, live cattle futures on the Chicago Mercantile Exchange, which reflect the price processors pay for cattle, have hit record highs.
Tom Windish, who oversees Cargill’s beef division, said the herd size is expected to decrease over the next two to three years, putting more operational pressure on meat processing companies like Cargill.
“When it comes to the final price of beef at the consumer end, the whole chain is under inflationary pressure.” Windish said, “Every link in the chain is facing higher costs.” Profit margins for U.S. beef processing fell about 57 percent in April from a year earlier, according to investment firm Stephens. Brazil-based JBS, the world’s largest meat company, reported a quarterly loss of $290 million in May. Tyson, the No. 1 U.S. meat supplier, said its beef unit’s operating income plunged to $166 million in the first six months of fiscal 2023, down from $1.59 billion in the same period a year earlier. The company’s shares have fallen more than 40 percent in the past 12 months.
Ken Wicker of Wisconsin supermarket chain Festival Foods says more consumers are choosing to buy beef loin over the more expensive rib-eye. Wicker, senior vice president for fresh foods, said some consumers are choosing to buy more seafood instead of more expensive steaks, or turkey instead of beef. If beef prices continue to rise, he said, companies may reduce the amount of meat in individual packages to minimize the price hit on certain parts of beef.
Jeff Cook, vice president of marketing operations for Fareway Stores, a Midwestern grocery chain, said the company may take advantage of a free package of hamburger buns for every eight ground beef patties purchased. For now, Fareway’s chicken sales are up, with a big driver being lower chicken prices due to increased production last year, Cook said, adding that consumers will really start switching to lower-priced chicken in late 2022 and early 2023.
David Benowitz, president of Craft & Crew Hospitality, says the restaurant’s operators recently agreed to a deal to acquire 200,000 pounds of beef at a fixed price, which will be used to make steak-and-rice, burgers and popular French dip sandwiches. It’s a different kind of small purchase than he’s made in the past, and not common among smaller-volume restaurant groups, but he notes that he hopes it will mitigate the impact of rising costs. “Meat prices are very volatile from month to month,” Benowitz said of the company’s reasons for entering into the aforementioned agreement, “and we expect beef prices to continue to rise.” Benowitz said the company, which has six locations in the Twin Cities area, may also have to renegotiate the deal when its restaurants run out of their current beef quotas. He said there’s a limit to how much the company can raise prices, considering its customer base is neighborhood regulars. “If the price is too high, you’ll consider consuming other dishes.”