November 14, 2023


Record beef prices in the US due to droughts and shrinking herds



The United States is experiencing record-high beef prices, reaching approximately US$8 per pound, surpassing the previous peak of US$7.90 during the pandemic, as announced by the US Department of Agriculture (USDA), due to droughts and shrinking cattle herds, Financial Times reported.


Live cattle prices in Chicago are also nearing a record at US$1.79 per pound compared to US$1.50 a year ago. While these prices would typically benefit ranchers, concerns are rising about the underlying issues driving the surge.


Droughts in the southern and western regions have led to increased feed costs, compelling ranchers to reduce the national cattle herd to its lowest size in 61 years. Last year, the western US faced its most severe dry spell in 1,200 years, with over a third of the lower forty-eight states still in drought as of October 31, according to the US Drought Monitor.


The drought's impact on fertile lands has disrupted the usual fattening process for cattle, forcing farmers to transport hay from distant locations or send cattle to feedlots earlier than usual. The shortage of hay has reached a critical point, with the amount stored domestically at its lowest level since 1954, according to the USDA.


Compounding the problem, global grain prices, essential for feed, have risen due to geopolitical events like Russia's invasion of Ukraine. Ranchers are grappling with herds that may be too large to manage, prompting many to sell cattle rather than incur additional feed costs.


Analysts express concern about the long-term implications of droughts and reduced herd sizes on the US market. Adam Speck, senior analyst at Gro Intelligence, a commodity analytics firm, said that farms in the north will benefit as they have better pastures, while business in the south contracts.


Rebuilding herds poses challenges as the beef industry operates on a longer cycle, with heifers only giving birth once a year.


Beef production is down by 5.2% year-on-year, said Arlan Suderman, chief commodities economist at broker StoneX. He anticipates a further 7% decline next year. Rebuilding herds is a slow process, requiring more extended periods than other livestock industries.


Despite the soaring costs, US consumers have shown resilience in their preference for beef. But ranchers worry that beef shortages may prompt consumers to shift to alternatives like chicken or pork, leading to a potential long-term change in consumer preferences.


-      Financial Times

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