Despite the hike in wholesale prices for beef, retailers have been slowly inching prices higher to avoid sticker shock.Brett Gundlock/The Globe and Mail
Beef prices are hitting all-time highs as supply tightens in the United States thanks to drought-stricken grasslands, expensive corn feed and a surge in demand after a cold spring kept North Americans away from the grill.
The cattle herd in the United States is the smallest it has been since 1952, by some estimates. The recent string of droughts has hammered ranchers needing grass, corn, and hay to keep their animals fat. These factors helped push wholesale beef prices to successive record highs last week. Concerning crop reports are adding to the pressure.
The wholesale price for beef hit $2.095 (U.S.) per pound Friday, according to the United States Department of Agriculture, after hitting record highs every day last week.
The price was about $1.69 per pound three years ago.
"Beef supplies are generally tight," said Brian Perillat, a senior market analyst at Canfax, a division of the Canadian Cattlemen's Association. "There's sort of what we call pent-up demand because of the cold weather and the poor opportunities for people to BBQ and grill beef. Now that they finally can, they are … pretty gung-ho."
American ranchers, faced with a shortage of grassland because of changing government regulations, urban sprawl, and drought, coupled with high feed prices because of the lack of rain, for years have been forced to send cattle to slaughter sooner than planned. That has caused herds to thin, threatening supplies.
"The herd has contracted significantly over the last few years and that has been driven primarily by drought conditions in the southern plains" and areas such as Texas, said Mike Martin, a spokesman for the North American meat division of food giant Cargill Inc. "Grazing land is parched … It is hard to put cattle out on grazing land if there's no grass."
The USDA expects homegrown beef supplies to shrink in 2013 and 2014. It predicts producers will churn out 25.1 billion pounds (11.4 billion kilograms) of beef in 2013, down from 25.9 billion pounds in 2012, the government agency said Thursday. Further, the USDA forecasts production to skid even further in 2014, hitting 24.1 billion pounds. Production has been falling since at least 2010, Thursday's data shows.
Corn, meanwhile, a staple food for cattle in the United States, has been in short supply after years of drought in the U.S. corn belt. The 2013 corn crop is off to another shaky start, with only 28 per cent of the acreage seeded, compared to 85 per cent this time last year, according to statistics released by the USDA last week. Only 5 per cent of this year's corn crop has emerged, compared to 52 per cent by this time in 2012. Unlike years past, this year's troubling start is due to too much moisture. Over the past five years, farmers had an average of 65 per cent of their crop in the ground by now, and 28 per cent had emerged, the USDA said.
Cattle producers will not necessarily find their wallets fattened because of the wholesale beef price rally. Their margins are still under pressure and some may opt to keep some cows and heifers on the ranch rather than send them to slaughter in order to rebuild their herds.
Beef prices also move with seasonal demand. Ribs and loins are popular over the Memorial Day long weekend in the United States. Burgers, a cheaper form of red meat, take over in the summer. Ribs are again popular in the fourth quarter over the holidays, said Kevin Good, a senior market analyst at CattleFax in Colorado.
While grocers are paying more to stock their fridges, consumers will be shielded from a dramatic jump at the checkout because retailers have been slowly inching prices higher to avoid sticker shock. The USDA Economic Research Service expects beef and veal prices to climb by 3 or 4 per cent in 2013, compared to a jump of 6.4 per cent in 2012 and 10.2 per cent in 2011.
Higher wholesale beef prices may also be a factor in changing menus. McDonald's Corp., the fast-food giant, eliminated its relatively pricey one-third pound Angus burger from its menu in the United States this month. The item is still available in Canada, said Karin Campbell, a spokeswoman for the company in Canada. McDonald's U.S. press office did not return a call seeking comment.