Higher beef prices good for producers, may be tough on consumers

Nov 17, 2013

These cattle on Jeff Longnecker's farm in Story County, Iowa, are part of a herd he's hoping to grow.
Credit Amy Mayer/Harvest Public Media

Once again, the prognosticators are saying beef prices are on the rise. We’ve seen this before—last year, the drought and high feed prices were being blamed. This time, the supply is tight and with livestock farmers looking at lower costs of production, some may keep animals on the farm to help increase their herds, rather than sending them to market. Since consumer demand typically goes up at this time of year, Lee Schulz, a livestock economist at Iowa State University, said the combination will increase the price meatpackers pay to producers.

“The real question is, we’ve seen beef prices being pushed the last couple of years and I think we’re really in that unchartered water of, how high are prices going to be?” Schulz said.

While the upswing is good news for producers, who have suffered years of dry conditions and related high grain prices, for consumers, it could mean short term retail price increases.  Schulz said once the herd grows and more supply reaches the market, prices could stabilize. But cattle are the slowest of the meat animals to reach market size so there’s a bit of a long lead on price changes.

Schulz points out that beef prices have been on a pretty steady increase and consumers have continued to buy it, despite generally not seeing gains in their disposable income. He says that’s because they can adjust how they spend their beef dollars.

“Some of the higher-end cuts,” Schulz said, “we might see consumers trade that off for some of the lower price cuts. Or more [dollars] going into ground beef, as opposed to some of the muscle cuts.”

But Schulz said retailers will also typically aim to keep the consumer price stable in order to maintain the interest.

The rising price of beef led at least one observer to discuss whether an opening might exist for pork to step in and grab some of those consumer meat dollars. But Steve Meyer, writing in National Hog Farmer, says that a rare opportunity to pick up some of that market share may be lost due to the outbreak of Porcine Epidemic Diarrhea Virus. The U.S. swine herd first encountered the disease, which is often fatal for baby pigs, last spring. And Schulz says already market watchers are predicting higher pork prices in the coming months because they are accounting for the unknown impact this disease may have on the pork supply.

“Productivity has been very strong in the [pork] industry,” Schulz said. But he says the expected growth and expansion may be slowed if the worst-case scenarios for PEDV are realized. Plus, if pork prices rise, the cost difference between beef and pork will diminish and consumers may no longer see pork as a less expensive alternative if or when beef gets more costly.