GREENVILLE, ILL.: For a guy who just sold some of his cattle at the highest price ever, Missouri rancher Ryan Sharrock is showing less enthusiasm for beef. He says the meat is just too expensive and that the cost probably will keep rising.
While he got more than $1,000 each for 23 calves sold at auction a couple of weeks ago, the 33-year-old Sharrock says he’s cut back on steak dinners for his family of five in Patton, Mo., to less than one a week from three. “It’s not so much a cheap family meal anymore,” he said.
U.S. beef prices are up 74 percent since 2009 to the highest on record, after a seven-year decline in the herd left the fewest cattle in at least six decades, government data show. Meat costs are rising faster than any other food group, eroding profit margins at Hormel Foods and forcing Costco and Chipotle to raise prices.
Supply probably will remain tight. It can take three years to expand the herd, and a prolonged drought in Texas, the top producer, parched pastures needed to raise young animals. The government says the United States will become a net beef importer in 2015. Cattle futures already up 23 percent in the past year in Chicago may rally 7.3 percent to $1.578 a pound by the end of December, a Bloomberg survey of five analysts showed.
“Beef’s a staple at this point, so at many points, it’s inelastic on price,” said Jake Dollarhide, the chief executive officer of Longbow Asset Management in Tulsa, Okla., which oversees about $75 million. “I don’t see consumer habits changing at these price levels.”
After years of high feed costs and drought, the domestic herd on Jan. 1 slid to 87.7 million head, the fewest to start a year since 1951 and the seventh straight decline, U.S. Department of Agriculture data show.
Beef demand peaks at this time of year as warm weather encourages outdoor grilling. At grocery stores, ground beef jumped 17 percent in the 12 months through April to a record $3.808 a pound on average, according to the Bureau of Labor Statistics. The USDA said May 23 that beef and veal prices will rise 5.5 percent to 6.5 percent this year, more than any food group.
The cost of beef for Denver-based Chipotle rose 25 percent in April from the fourth quarter of 2013, a “pretty dramatic” increase, Chief Financial Officer Jack Hartung said June 11. The restaurant chain is increasing menu prices, with steak items fetching 70 cents to 80 cents more than chicken, up from a 35-cent premium.
Expanding the cattle herd to boost beef output is a slow process. The gestation for calves is nine months and animals take as long as 22 months to reach slaughter weight. Feedlots buy calves weighing 500 to 800 pounds raised mostly on pastures and then feed them mostly corn until they reach 1,200 pounds and can be sold to beef plants.