Beef Prices Surge 12% Year Over Year Amid Supply Shortages

Beef prices in the U.S. have been on a steady rise, with the average price of a pound of ground beef reaching $6.12 in June, marking a nearly 12% increase from the previous year. Similarly, the average price of all uncooked beef steaks rose by 8% to $11.49 per pound. This inflation in beef prices is not a new phenomenon but has been a gradual trend over the past two decades, driven by a tight supply of cattle and sustained demand for beef.

The U.S. cattle herd has been in decline for decades, with the current number standing at 86.7 million cattle and calves as of January 1, 2023. This figure represents an 8% decrease from the peak in 2019 and is the lowest since 1951. Several factors, including drought and cattle prices, have contributed to this decline. The emergence of a parasitic pest in Mexico and potential tariffs could further reduce supply and drive prices higher.

One of the key factors contributing to the shrinking cattle herd is the efficiency of the American beef industry. Ranchers have improved breeding techniques to produce larger animals, allowing them to maintain beef supply with fewer cattle. However, a three-year drought beginning in 2020 exacerbated the situation by drying out pastures and increasing feed costs. This led many ranchers to slaughter more female cattle than usual, which temporarily boosted beef supplies but reduced future herd sizes. The high cattle prices, with animals selling for over $230 per hundredweight, have also incentivized ranchers to sell their cows for immediate profit rather than keeping them for breeding.

Another significant factor is the emergence of the New World screwworm fly in Mexico, which has led to a ban on cattle imports from the region. This pest lays eggs in wounds on warm-blooded animals, and its larvae feed on live flesh, posing a threat to the U.S. cattle industry. The loss of 4% of the U.S. cattle supply from Mexico has added pressure to the already tight supply, driving prices higher.

Tariffs imposed by the Trump administration could also impact beef prices. The U.S. imports over 4 million pounds of beef annually, much of which is lean beef trimmings used to produce ground beef. Tariffs on imports from countries like Brazil could increase the cost of these trimmings, making it difficult for U.S. producers to replace them due to the country's focus on producing fattier beef.

Despite these challenges, beef prices are expected to remain high. The strong demand for beef during the grilling season and the lack of significant shifts in consumer behavior towards cheaper alternatives like chicken or pork suggest that prices will stay elevated. While recent improvements in pasture conditions and lower grain prices might encourage ranchers to expand their herds, it would take at least two years to see the results. Additionally, the high cost of adding bred heifers to herds and the current economic climate pose barriers to herd expansion.

As the grilling season winds down, there is typically a seasonal decline in beef prices. However, this year's decline is expected to be modest, indicating that consumers should prepare for continued high beef prices in the near future.