US beef prices are up 45% on average from a year ago as many consumers celebrate the post-pandemic reopening with more frequent dining out. But a Gro analysis shows it would take years for beef supplies to catch up with current levels of demand, and that prices are likely to remain elevated at least until consumer buying euphoria settles down.
Beef demand is exceptionally high. Sales of beef in June were 12% above the 20-year average. And while consumer demand for beef typically rises in June, this year new demand exceeded the 20-year average by half a billion pounds.
Supplies can’t keep up with that level of demand. Feedlots, the last stop for most cattle ahead of the slaughterhouse, were less than 1% busier in June than they were a year earlier, and the number of cattle newly arriving in feedlots actually declined in that period. Meanwhile, slaughter volume in June was up just 1.2% year over year.
Even if slaughter quickens to a more normal growth pace of 2.9% per year, Gro calculates that it would take five years for supplies to match the current demand.
At the same time, cattle have been spending more time at pasture before entering feedlots, and slaughter weights are higher than pre-pandemic levels, suggesting that future beef supplies could be greater than production data suggest. With corn prices still above $5 a bushel, ranchers have incentive to delay putting cattle into feedlots.
As a result, beef inflation has been on the rise. Cattle prices in June averaged $1.21 a pound, up 25% from 97 cents in July 2020, which represented a multiyear low. And beef cutouts currently average $2.87 a pound, up 45% from this time last year.
The COVID pandemic caused supply constraints, including slaughterhouse closures, that brought a months-long cattle glut in 2020, which Gro described in detail in our presentation “Working Through the COVID Cattle Glut.”
Because of that, slaughter volumes in April/May 2021 soared by 23% compared with the lackluster year-earlier period. Now, however, the recent hasty retreat in slaughter volume growth threatens to keep beef supplies tight, and prices elevated, as long as consumer demand remains exceptionally high.
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