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Wed June 12, 2013
Grillers beware: Drought driving beef prices up
If you've experienced sticker shock shopping for ground beef or steak recently, be prepared for an entire summer of high beef prices.
Multi-year droughts in states that produce most of the country's beef cattle have driven up costs to historic highs. Last year, ranchers culled deep into their herds — some even liquidated all their cattle — which pushed the U.S. cattle herd to its lowest point since the 1950s.
And dry conditions this summer could cause the herd to dwindle even further. That means beef prices may continue on a steady climb, just in time for grilling season.
At Edwards Meats in Wheat Ridge, Colo., near Denver, workers divvy up the bright red ground beef into trays, sliding one into a glass display case. A laminated price tag is the final touch. Recently, the number on that slip of paper has been getting higher.
"In the last three weeks, it has really jumped," says owner Darin Edwards. "Most of our prices have gone up at least a dollar a pound or more."
Price increases are commonplace when people start firing up their backyard grills, but Edwards says this year is different. Prices for certain cuts of beef have jumped to all-time highs.
"Sometimes you throw a couple big, thick T-Bone steaks up on the scale and it's 30, 40 bucks, and [customers are] like, 'Yeah, I can't afford those,' " Edwards says.
And it's not just T-Bones. The same story goes for New York strips, tenderloins and rib-eyes.
Even with the higher prices. Edwards is absorbing some of the cost. That's not something he can keep up for long.
"If it doesn't come back down in the next couple of weeks, we'll have to adjust our prices accordingly," he says. "We just kind of bite the bullet for a little bit."
So why are prices going up? Simply put, there just isn't enough feed. Because of the drought that has been battering much of Midwest cattle country for more than a year, there's a smaller supply of hay and dense grasses. Ranchers are having a tough time finding feed, and when they do, it's more expensive.
During the winter, Gerald Schreiber, whose ranch is in Last Chance, Colo., paid more than double what he usually does for hay. He usually maintains a herd of 250 cattle, but last year he prematurely sold more than 30 of his animals, unable to justify the high feed prices. With hindsight, he says he should've culled even deeper. A combination of drought, wildfire and wind transformed Schreiber's pastures into a blanket of invasive, noxious weeds. The fields haven't recovered.
"This is pretty unpredictable country," Schreiber says. "We deal with drought a lot. You got to get the rose-colored glasses off."
Recent research shows that more than half of the country's beef cattle are in states where the pasture can't support large herds.
"A rancher has to make a decision," says Elaine Johnson, a market analyst with CattleHedging.com. "Do I buy expensive hay and try to hang on for another year? Or do I just liquidate my cows? Tighter and tighter supplies means higher and higher prices."
Those higher prices mean more people could choose to forgo burgers and steaks this summer. Sales of beef have been down so far this year, while less expensive options, like pork, are up. Johnson says consumers can expect to pay more for beef as long as dry conditions persist across the high plains.
"When you have a drought like this and have liquidated numbers significantly, it typically means that supplies are going to be reduced for two, three, four years, and it's one of the reasons why we've seen such a big increase in beef prices," Johnson says.
Most economists agree and expect prices to stay high the rest of the year. Until ranchers can build up their herds, the family barbecue will put a bigger dent in the pocketbook.
This story originally aired as part of Business Beat, a weekly program about business and economics in mid-Missouri.