Meatpackers paid the highest cash prices on record for live, slaughter-ready cattle in the major producing states of Kansas, Nebraska and Texas this past week. This led traders to bid up future prices, which have already been rising due to beef purchases for the holidays and the meat industry dealing with tight cattle supplies after prolonged drought in part of the U.S. Great Plains.
Analysis expect the higher cattle prices to be passed along to U.S. consumers in the next few months. That would boost fresh-beef prices at retail to an all time record of $5.014/# in November, according to the U.S. Department of Agriculture. This is a 26% increase over five years ago.
Higher beef prices could further effect the consumption of the red meat, which has slumped 25% in the past three decades as Americans turned to less costly meats or avoided animal protein completely for health/personal reasons.
The USDA estimates retail beef prices will climb 2.5% to 3.5% this year. That would be up from about 2% last year but below some earlier increases, including a 10.2% jump in retail beef prices in 2011.
U.S. Cattle owner’s are commanding higher prices because supplies have shrunk after roughly three years of drought in parts of Texas, Kansas and other big cattle-producing states. Many ranchers reduced their herds in recent years as the searing heat and lack of rain parched pastures and increased the cost of feed, including hay and corn.
Some believe it could be four to five years before we see a big increase in the amount of feeder cattle out there. We have got to rebuild numbers due to the droughts we’ve had over the last 10 years.
A big U.S. corn crop in 2013 has cut the cost of the grain roughly 40% in the past year. For now, that is further reducing the cattle supply, because the lower costs make it more affordable for ranchers to hold on to cows and breed more calves to try to take advantage of higher prices for feeder cattle.
The nation’s cattle herd was the smallest in six decades at the start of 2013, the most recent data available, according to the USDA.
A big question for cattle traders, meatpackers and grocery chains is whether U.S. consumers will be willing to pay higher prices for beef. Last year, some consumers pushed back at the higher beef costs.
Beef sales volumes fell 0.7% from a year earlier while pork volumes grew 3.6% and chicken volumes rose 0.8%.
Strip steaks, rib-eyes and other prime cuts of beef have become “luxury items”.
Chicken prices have been coming down, which will help offset higher beef prices.
Analysts said beef prices will stay high for several more years because of the time it takes to bring cattle to market. Calves take about nine months to deliver and then are fed for 12 to 18 months before slaughter.
Many are waiting on the sidelines to bet on futures. How many retailers, who buy large volumes of beef, will react to the increase in costs.
Source: The Wall Street Journal, 1/4-5/2014