Key facts
- US beef prices are up 12% year-over-year, significantly outpacing general inflation.
- Ranchers are selling calves at record prices, but their operational costs have also surged.
- A national shortage of cattle, driven by drought and disease, is the primary cause of high prices.
- Meatpacking companies are experiencing losses despite selling beef at record highs.
- Restaurants and supermarkets cannot fully pass on increased costs to consumers due to price sensitivity.
US beef prices have surged to record highs, with consumers paying 12% more than a year ago, a rate significantly higher than general inflation. However, cattle ranchers like Eric Gropper in South Dakota are not seeing increased profits due to drastically higher operational costs for feed, water, equipment, and fencing. Gropper's wells have run dry due to drought, forcing him to use water tankers, and the cost of a new truck has tripled.
The shortage of cattle, the lowest since 1951 due to drought and disease, drives the high prices paid to ranchers. These calves are then sent to feedlots, where companies also face record-high purchase prices, preventing them from making larger profits. The situation is similar for meatpackers, such as Tyson, which reported significant losses in its beef division. Four companies—Tyson, JBS, Cargill, and National Beef—control about 85% of American beef processing.
Smaller meatpackers like Harpley's Meatpacking are paying up to 60% more for live animals. They also struggle with inefficiencies, operating plants below full capacity because of the cattle shortage. This means fixed costs are spread over fewer animals, leading to potential losses per head.
Restaurants and supermarkets also face limitations. Paul and Jessica Urban, owners of Block 16 restaurant, noted that while they could potentially charge $13 for a burger, they are hesitant to alienate customers, limiting their profit margins. The overall situation is a cycle of increased money turnover throughout the supply chain without increased profit retention for any participant, which is unlikely to change until significantly more cattle enter the market.