Beef is on the Mooove
You might have noticed the price of beef at your local grocery store raising over the last year and just chalked it up to inflation. That’s an easy assumption to land on, everything seems to cost more now and its easy for retailers to shrug their shoulders and say its inflation, take it or leave it. However, this is a much more complicated issue than just inflation on consumer goods, and it might take years to sort back out.
Last year, I wrote about record herd consolidation for beef cattle due to years long droughts coupled with high feed prices. Farmers and ranchers couldn’t afford the higher prices of hay and corn to feed the animals in a profitable manner, so they sold out their herd and left the business. Beef prices remained artificially low for almost 2 years as the consolidated breeding animals were processed for meat, essentially flooding the market. In the short term, the consumer was able to purchase beef at a reasonable rate and farmers were forced to stomach tiny or nonexistent profit margins on animals.
The United States beef cattle herd currently sits at 94.2 million animals, which sounds like a lot on paper but is the lowest in history. In the past, prices would have rose on beef to a degree, but imports from other markets would have kept prices within a workable range. There are a couple of reasons right now that are cutting the possible contribution of other countries into our market.
Mexico is dealing with a flesh eating screwworm that is infecting their herd as the result of illegal cattle smuggled across the border from Guatemala. The US has imposed stiff restrictions on live cattle coming across from Mexico to prevent the disease from spreading to herds in Texas, New Mexico and Arizona. Brazil is another country that we would typically turn to for help in solving a beef supply issue, but while they don’t have major disease problems, they do face significant financial barriers. The previous trade deal allowed for a limited amount of beef to come in at a low tariff rate and then once that amount was exceeded, the tariff rate rose to 26.5% on beef. This process is a trade tool called a quota that countries use all over the world to protect domestic industry while still allowing for trade. As part of his ongoing trade war, President Trump has raised the tariff rate to 50%, making Brazilian beef comparable in price to the higher American cost once it reaches the consumer.
So how long will these high prices last? If I could predict markets like this accurately, I would be jumping into a pool full of money in my yard Scrooge McDuck style. The beef market moves more slowly than with poultry or pigs. It takes almost 4 times as long to feed out beef than those animals, around two years. So herd development takes time and concentrated effort. Farmers have to decide to retain breeding cows to promote herd expansion as opposed to selling the animals for meat at all time high prices. There could also be the sentiment among producers that herd expansion will increase the supply and decrease prices. However, the high market will incentivize new growers to get into the cattle business and begin their own herd. While this will help prices on shelves, it is an incredibly risky time to start a herd. The costs for breeding animals have followed the meat market, raising to unsustainable levels. So new growers will be buying into the breeding animals at high prices and banking on beef prices still being high in two years to be able to make the math work while fronting all of the cost of feed, vet bill, and other inputs.
The other factor that could impact this market is imports. The government could decide that these high prices are anti consumer and look to supplement our herds with outside animals. Australia is a large producer of beef, but it has found a profitable market in China who is sitting out the American market as part of our ongoing trade war. Without government interference, this market will correct itself. Either people will purchase less meat because it is unaffordable or more producers will raise more animals and the supply will inch closer to demand. A re balance of the free market system could take months if not years while government intervention and imports could change this in a matter of months.
The other threat to this high price is changing consumer purchasing decisions. Does beef have enough of a foothold in American homes that they will stomach higher prices and continue to buy at the same rate? Or will they change to other animal protein alternatives that offer a more affordable option? Who knows, but it is probably safe to assume that there will be a percentage of market share lost simply because of price.
I know this is a lot of information to process, but it really highlights how complex our food market has become. For most of history, you simply went to the local producer or store and chose from what they had available on hand or were able to source locally. This type of complex trade and market system allow for us to source foods from all over the world, typically without a hitch. This system is able to withstand one problem without too much stress on the consumer, but when multiple issues come together it can take the market awhile to recover. While I have confidence that the supply issue will eventually get sorted out, it could be udder chaos in the beef market in the short term.
