Drought and high feed costs push beef to record high

WOOSTER, Ohio — It’s no surprise to anyone who’s been shopping lately, or has bought a quarter or a half a beef: The price is up, and in a big way.

Grocery store prices for ground beef are ranging from $3 a pound and up, and most steaks are selling for at least $5 a pound, according to the U.S. Department of Agriculture’s report on advertised prices for retail meat.

Farmers received an average of $125 per hundredweight (hundred pounds) of live beef in May, according to the National Agricultural Statistics Service. That’s about as much as they’ve ever received, with prices for choice beef now surpassing $130.

But consumers shouldn’t assume farmers are necessarily pocketing more, nor should farmers jump too soon at an opportunity to fill their barns with high-dollar beef.Margins are tight. While there may be some additional opportunity — depending on how inputs are managed — the margins between inputs and sale price are tighter than ever for many producers.

Sam Sutherly, an Ohio beef cattle producer near Dayton, said it can cost $1,600 just to feed and finish one steer.

“Our product in the grocery store is becoming unaffordable for most of our customers,” said Sutherly, who also is president of Ohio Cattlemen’s Association.

Chris Hurt, an ag economist with Purdue University, said many large producers have been forced out of business by the increased costs, and others are struggling to keep up. This includes cattle producers, but also auction houses, meat packers and the whole industry.

“They’ve lost a lot of money,” he said. “Billions of dollars of loss across the (livestock) sector.”

And as prices go up, consumers are eating less beef. Hurt said consumption has gone down about 10 pounds per person since 2006, according to USDA.

Switching cuts

But consumers are not giving up beef completely. In many cases, they’re looking for cheaper cuts of beef, such as ground beef.

Jackie Siekmann, spokesperson for Kroger Co., said consumers are definitely cutting back, but not as much as one might think.

“They’re still buying, but they’re just switching,” she said.

The biggest changes, Siekmann said, are with “price-sensitive” customers. Others, who maybe buy organic or pasture-raised beef, are less deterred by the price.

What’s next?

A number of factors could easily change beef prices throughout the rest of the year, and into 2014. A big one would be a good crop year.Last year’s record-setting drought left many producers short of feed, and paying record prices to buy hay and grain. Producers west of Ohio were forced to sell some of their herds to make ends meet.

A good crop yield this year could turn the situation around. But another mediocre or challenging year could send inputs and cattle prices even higher.

“It’s kind of one man’s guessing game as to where this thing is going to go,” Sutherly said.

His own operation supplies all of its own grain for feed, but when grain prices are high, producers have to weigh whether they can make more money selling the grain, or using the grain to finish their livestock.

Hurt said August futures on the Chicago Mercantile Exchange have dropped a little more than $10 per hundredweight since the beginning of the year, to about $119 today.

He said it could take about three years for the U.S. beef herd to rebuild, which, coupled with a few good crop years, would most likely push prices down and demand back up.

Currently, the nation is at the lowest level of brood cow numbers since 1963 and the lowest number of cattle (cows and calves, dairy and beef) since 1952.

“Unfortunately, once the breeding herd gets reduced this much it’s not a quick process to get that turned around,” Hurt said. “The first thing we’re going to have to see is better crops and better pasture conditions. Crops this year will relate to feed prices.”

In the meantime, he expects pork and poultry producers will gain some market share, because those commodities cost less at retail and take less time to expand at farm level.

The most recent USDA price per pound of meat report shows beef averaging at $5.26 per pound, while pork is $3.46 per pound, and broilers are at $1.91 per pound. Whole turkeys average $1.65 per pound.

But Sutherly said there’s no replacement for the flavor of beef. He sees some hope in the way beef is packaged and marketed. He’s working on ways to make beef more appealing to younger generations — something they can cook and enjoy on the go.

“We’ve got to make it convenient,” he said.