Persistent beef prices are expected to continue, even as the cookout season concludes.
In the United States, the summer barbecue season is traditionally a time for enjoying beef, but this year, consumers are facing record-high prices due to a combination of factors affecting the beef supply chain.
The U.S. cattle herd, which peaked at 94 million in 2021, has shrunk to approximately 86.7 million in 2022, the lowest level since 1951. This decline is primarily due to higher production costs from unseasonably dry weather, rising grain and feed prices, and increased interest rates on farms operating with tight margins. The reduction in herd size has resulted in a significant decrease in beef supply, leading to record-high prices.
Multi-year drought in pasture areas has further affected the situation, with poor or very poor pasture ratings increasing from 23% to 32% compared to the previous year. This poor pasture condition delays herd rebuilding because it limits grazing capacity and raises feeding costs.
Import restrictions and border closures have also contributed to the beef supply issues. The U.S.-Mexico border remains closed to cattle and livestock imports due to concerns about the New World Screwworm pest, reducing feeder cattle imports by roughly 750,000 to 800,000 head in 2022. Additionally, tariffs and trade tensions, particularly with China, have slowed export demand and complicated trade dynamics.
Rising tariffs and trade conflicts further limit both imports of feeder cattle and beef exports, disrupting market balance and putting additional pressure on prices. The threatened 50% tariff on imports from Brazil, set to start on August 1, could further tighten the U.S. beef supply. Brazilian meatpackers are reconsidering exporting to the U.S. due to the looming tariffs.
Steak and ground beef prices are at their highest levels since 1984, with ground beef surpassing $6 per pound for the first time since the 1980s, and overall beef prices up about 10-12% year-over-year. If the supply constraints persist and consumer demand remains stable, prices could stay elevated.
The long-term effects of these beef supply issues include sustained high prices, slowed herd rebuilding, increased imports of lean beef, market concentration, potential shifts in consumer demand, and ongoing risks to supplier viability and competitive balance.
As a result, some companies are turning to chicken amid challenges in the beef industry. Fast-food chains like McDonald's, Wendy's, and Chipotle are offering new chicken options, while Tyson Foods, one of America's largest meat companies, has also recently launched new chicken items.
In an effort to increase capacity, improve supply chain, cut costs, and offer low-priced high-quality beef, Walmart recently opened its first-ever owned and operated case-ready beef facility.
As the beef industry grapples with these challenges, it remains to be seen how consumers, farmers, and the market will adapt in the long term.
- The reduction in the U.S. cattle herd has led to a significant decrease in beef supply and record-high prices, which has affected the personal-finance of consumers, particularly during the summer barbecue season.
- The beef industry's struggle with supply chain issues has led to a rise in interest in real estate, as some companies are turning to chicken as an alternative, and fast-food chains are launching new chicken options.
- The ongoing beef supply issues and increased beef prices could lead to shifts in consumer demand towards food-and-drink options other than beef, such as chicken, giving the restaurant and food industry a potential boost.
- The technology sector could play a role in addressing the challenges faced by the beef industry, with companies like Walmart opening case-ready beef facilities to improve supply chain and cut costs.
- In the financial industry, the ongoing beef supply issues, combined with rising tariffs and trade conflicts, could lead to a reallocation of portfolio investments to focus on companies that offer alternatives to beef, such as chicken producers and fast-food chains.
- The long-term effects of these beef supply issues on the U.S. economy could extend to various sectors, such as technology, sports, and lifestyle, as consumers, businesses, and the market adapt to the changing landscape.
