Why Was Beef So Expensive in 2017?

Beef prices reached record highs in 2017 leaving many consumers wondering why their favorite red meat was suddenly so expensive. A combination of factors contributed to the spike in beef costs that year.

A Series of Droughts Reduced Cattle Numbers

The U.S. cattle herd shrank dramatically from 2014 to 2017 due to severe drought conditions in cattle producing regions. Prolonged dry weather in the Southern Plains led to poor pasture conditions, forcing cattle ranchers to cull more animals and send them to feedlots early. The Midwest and West also experienced drought during this time.

As a result, the total U.S. cattle inventory dropped to 89.1 million head in 2017, the lowest level since 1951. With fewer cattle available, the beef supply tightened, putting upward pressure on prices.

High Corn Prices Increased Feed Costs

From 2012 to 2013 widespread drought and high temperatures devastated corn production in the U.S. Corn yields were 27 percent lower than the previous year. With corn supplies limited, prices surged reaching over $8 per bushel in 2012.

Since corn makes up the bulk of cattle feed rations, higher corn prices translated into higher feed costs for cattle feeders. Feed can account for 60-70 percent of the cost of raising cattle to slaughter weights. Facing squeezed margins, feedlots reduced capacity, contributing to the tightening beef supply.

Strong Export Demand Kept Supplies Limited in the U.S.

Even as domestic beef production declined from 2014 to 2017, U.S. beef exports steadily increased. By 2017, the U.S. was exporting around 10 percent of its beef production, compared to just 5 percent in 2010.

Much of this demand came from Asia, especially Japan, South Korea and Hong Kong. A growing middle class and preference for high-quality American beef fueled import growth. With more U.S. beef being shipped overseas, less was left on the domestic market, further reducing supply.

Consumer Preferences Shifted Towards Steaks

During 2014-2016, consumer preferences shifted notably towards middle meats like ribeyes, T-bones and strip steaks. Retail data showed much stronger demand growth for these cuts compared to ground beef and roasts.

However, supplies of high-value middle meats are inherently limited. Each carcass only provides so many steaks. With consumers bidding more aggressively for these cuts, it caused their prices to rise exponentially compared to ground beef.

Retail Beef Prices Reached New Highs

By July 2017, the average retail price for fresh beef reached $5.83 per pound, a new record high. The choice beef price peaked at $6.10 per pound mid-year, while ground beef averaged $4.01 per pound.

On a monthly basis, retail beef prices increased year-over-year every month in 2017. For the July 4th grilling season, boneless ribeye averaged $10.99 per pound, 44 percent higher than the previous year.

Wholesale Beef Values Peaked in June

Supporting the climb in retail beef prices, wholesale beef values surged in the first half of 2017. The choice beef cutout peaked at $250.86 per cwt in June, driven by strong demand for middle meats.

Select cutout values topped at $224.54 per cwt in May. The spreads between choice and select grades also reached extreme levels in June, indicative of high demand outpacing available supplies.

Herd Expansion Provided Some Relief Late in 2017

With calf prices at record levels from 2014-2016, ranchers had significant incentive to retain female stock and rebuild herds. The resulting expansion slowly began increasing available supplies of fed cattle late in 2017.

Both slaughter numbers and carcass weights started trending higher on a year-over-year basis in the second half of 2017. This provided some relief on prices, though not enough to dramatically lower retail beef values.

Key Takeaways

• Multiple factors combined to drive beef prices to unprecedented highs in 2017
• Tighter cattle supplies after herd liquidation left less beef available
• Strong overseas demand reduced beef supply left in the domestic market
• A shift in consumer demand towards high-priced steaks exacerbated supply issues
• Retail beef prices exceeded $6/lb for the first time, while wholesale values also hit new records
• Live cattle prices lagged well behind the upside in beef values
• Relative to poultry and pork, beef prices reached extreme record levels
• Food inflation from high beef prices impacted lower income consumers the most
• Diners changed habits – eating less beef and shifting to cheaper proteins and cuts
• High beef costs squeezed margins for cattle producers and foodservice operators
• The upside in the beef market finally peaked in 2017, leading to relief for consumers in 2018