Droughts trimmed cattle herds, now consumers will be paying the price

New York CNN  — 

A slowing economy may lead to a decline in sales of pricey beef cuts, but don’t look for any bargains just yet.

Market forces that have been building for a long time, including devastating droughts, will likely keep hamburger and steak prices steady — and relatively expensive.

In part, that’s because there’s less beef. A contraction in beef supplies “has been coming for a while,” said David Anderson, a professor in Texas A&M University’s agricultural economics department. “We’re starting to see the effects that we knew were going to be coming for a couple of years.”

When extreme drought hit the United States in recent years, farmers started to rapidly sell cattle because the dry conditions, along with higher feed costs, made it expensive or impossible to maintain their herds. That wave of sales, particularly of cows used to breed, has led to supply constraints this year.

“Tightening cattle supplies are expected to cause a significant year-over-year decrease in beef production, the first decline since 2015,” a March market outlook from the US Department of Agriculture noted.

“If we produce less beef, the pressure’s on for higher prices,” said Anderson. The “big unknown is going to be consumer demand.”

The beef supply tends to grow and shrink in roughly 10-year cycles, said Lance Zimmerman, senior beef analyst for the North American market with Rabobank. When supply shrinks, consumer prices tend to go up. But with people nervous about the economy, this year’s more complicated.

“The biggest thing that looms large, in all of our minds as market analysts right now, is do we have recession risk that we need to price into the market for next year,” Zimmerman said. “If that’s the case, beef prices may be steadier.”

And with food inflation stubbornly high, consumers are already cutting back on certain items, including beef.

Tyson (TSN), which processes about a fifth of the country’s beef, poultry and pork, noted a sales dip in beef in the three months ending December 31, 2022.

Beef sales “were down 5.6% compared to record high sales in the prior year,” said CFO John Tyson during a February analyst call discussing the quarterly results, noting that prices were down in the quarter due to “softer domestic demand for beef.” The company said that it expects its beef margins to fall this year because of the smaller domestic supply.

“Retailers through last year continued to push price on the consumer,” said Adam Speck, senior livestock analyst at Gro Intelligence. Now they have to answer a question as they plan for the year: Will demand be high enough to warrant raising prices even more?

“The answer is probably no,” said Speck. That may not be a huge relief, as beef prices are still relatively high. In 2022, fresh choice beef retailed for $7.59 per pound, according to March data from the USDA. That’s up from $7.25 per pound the previous year.

Stores may try to test the waters during barbecue season.

In the spring, “we’re at the bottom of our traditional seasonal demand,” said Bernt Nelson, an economist with American Farm Bureau Federation. Demand for beef typically dips after the holidays, and picks up when people fire up their grills in the summer, he noted. If demand remains strong, “we may see some higher beef prices,” towards the fall and later, Bernt said.