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Originally published Thursday, February 23, 2012 at 5:10 PM

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Beef prices up over exports, dwindling herds

The U.S. Department of Agriculture (USDA) forecast a 4.1 percent drop in beef output this year, boosting the cost of the meat for consumers by as much as 5 percent this year, more than any other food group except seafood.

St. Louis Post-Dispatch

On the rise

PRICES FOR BEEF overall hit a record high in December. Even prices for economical ground chuck have climbed in the past five years. Average price per pound of ground chuck in December:

2007: $2.70

2008: $3.00

2009: $2.83

2010: $2.93

2011: $3.27

Source: USDA

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ST. LOUIS — For anyone who loves a good steak, a juicy burger or a nice Sunday roast, these are anxious times.

Surging beef exports and the smallest U.S. cattle herd since 1952 have boosted prices. Cattle futures rose to $1.315 a pound in Chicago on Feb. 22, leaving prices up 6.8 percent this year.

The U.S. Department of Agriculture (USDA) forecast a 4.1 percent drop in beef output this year, boosting the cost of the meat for consumers by as much as 5 percent this year, more than any other food group except seafood.

"Prices have gone up quite a bit. That usually happens around the holidays, but we expect them to come down," said Pam Neal, owner of the steak-centric Al's Restaurant in St. Louis. "Not this time. They're going to be jumping even higher. It's hard to handle."

Beef prices are soaring for a number of reasons. Producers, who struggled with high feed costs and diminishing profits, began shrinking their herds roughly five years ago.

Also last year, a drought in Texas and Oklahoma, the top two cattle-producing states, forced producers to cull herds. As a result, the number of cattle in the United States fell 2 percent from the beginning of 2011 to 90.8 million head, the USDA reported last month.

"There's not enough beef out there," said Ron Plain, an agricultural economist with the University of Missouri. "This year, there's going to be less beef, more people, the supply is going to be tighter, and that means more records."

Compounding matters for beef lovers are soaring feed, fuel and production costs, which are forcing price increases all along the production chain.

"Look at our fertilizer costs, our grain costs. Any piece of machinery we buy has just gone up," said Tom Sachs, who raises cattle in Missouri's St. Charles County. "Our input costs are just really high."

For the cattle industry in general, the numbers come as good news. Prices, per pound for a steer, have topped $1.70 of late, compared with about 95 cents five years ago. For the average 1,300-pound steer, that adds up.

"Times are good," said Mike Miller, of Cattlefax, a Colorado-based cattle-industry research firm. "Our expectation is it's going to be good for some time."

But the good times for the industry have not come without some trials, and some work in courting overseas markets.

Since 1980, according to the USDA, per capita beef consumption has plummeted 25 percent. In 2011, the average American consumed 57.6 pounds of beef, down 13 percent from a decade prior. This year the number is predicted to decline again to 54.1 pounds.

The reasons for the decline are difficult to isolate. But they include health concerns over the higher fat content in red meat, worries about humane treatment and links to environmental problems, including greenhouse gases — all of which have gotten a lot of attention in recent years.

"These noneconomic factors are really tough to talk about," said Scott Brown, a livestock economist with the Food and Agricultural Policy Research Center at the University of Missouri. "Frankly, when the consumer goes to the store or restaurant, it's the relative price that's driving their decision."

Whatever the reason for the decline, the country's cattle producers have helped compensate for it by making inroads into overseas markets, particularly in Asia.

"Worldwide consumption of meat and demand has increased," said Jeff Windett, who heads the Missouri Cattlemen's Association. "I think it's just good business sense to expand market opportunities for producers."

Overseas markets also embrace pieces of the animal that Americans typically don't consume, bringing more dollars to American beef producers. Beef exports surged 21 percent in 2011, government data show.

"Tripe, oxtail, tongue ... some of those kinds of meat sell for a lot of money," Windett explained. "It's really creating a market for some of those variety meats and adding value to the carcass overall."

On Thursday, Agriculture Secretary Tom Vilsack said the U.S. "clearly is seeing progress" in talks with China aimed at easing restrictions on U.S. beef.

The Chinese market has been closed to U.S. beef since 2003 because of concerns about mad-cow disease. Resolution of some issues may be "wrapped up in the near term," Vilsack said Thursday in a question-and-answer session at a farm forum near Washington, D.C.

Opening up the Chinese market probably would drive prices even higher, Christian Mayer, a market adviser at Northstar Commodity Investments in Minneapolis, said Thursday.

"That could be very big, very important," Mayer said. "This market is still running into supply issues. If you add more demand to the equation, that will keep us supported in the longer term."

"It spells a very bright spot for the U.S. beef industry," said Brown, the livestock economist. "There are just a lot of things on the trade front that look to be very positive."

That will, inevitably, put more pressure on prices in U.S. supermarkets, at least in the short term. Because cattle herds take years to rebuild and require huge amounts of capital, it could be some time before the American cattle inventory can help even out costs to consumers, cattle ranchers say.

Material from Bloomberg News

is included in this report.

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