Why Are Beef Prices So High in 2021?

Beef prices have reached record highs in 2021 leaving many consumers wondering why their favorite steaks and burgers have become so expensive. There are several factors that have combined to drive beef prices up dramatically this year.

A Perfect Storm of Factors Driving Up Beef Prices

The main reasons beef prices have surged in 2021 include

• Decreased cattle inventory and tightening beef supplies
• Strong consumer demand for beef
• Drought conditions impacting cattle production
• High grain and feed costs for cattle farmers
• Supply chain issues slowing beef production and processing
• Rising inflation across the economy

These factors together have created a perfect storm pushing beef prices to unprecedented levels this year Let’s look at each of these key factors in more detail,

Shrinking Cattle Supplies

The biggest driver of the beef price boom is that the supply of cattle in the U.S. has shrunk significantly. According to the U.S. Department of Agriculture (USDA), the U.S. cattle inventory has fallen to its lowest level since 2015. Having fewer cows and calves to harvest means the beef supply has tightened at a time when demand is strong.

Several trends have contributed to declining cattle numbers in recent years:

• Years of drought conditions – Droughts in cattle producing regions have reduced available grazing pasture and driven up costs of feeding cattle. Many ranchers culled their cow herds or reduced new pregnancies.

• High feed costs – With corn, soy and other cattle feed prices soaring, it has become more expensive for ranchers to raise cattle. Thinner profit margins prompted herd downsizing.

• Consolidation in the beef industry – Smaller beef producers have been pushed out by larger conglomerates. Less competition means fewer new cattle being added to the national herd.

• International demand – Growing middle classes in countries like China and Japan have increased demand for American beef. More cattle have been exported, tightening U.S. supply.

With the total cattle population declining, beef market analysts don’t see the supply situation changing meaningfully in the short term. It takes over 2 years for a calf to grow to harvest size, so rebuilding the herd will take considerable time.

Consumers Still Have a Strong Appetite for Beef

If cattle supplies are low, normally that would reduce consumer demand and bring prices back down. But that hasn’t happened with beef because customer demand remains quite strong.

Despite record retail prices, American consumers are still buying a lot of steaks, burgers and other beef products. Beef demand has been resilient for several reasons:

• Rebounding restaurant sales – As pandemic restrictions eased in 2021, restaurant traffic picked up. With more people dining out again, demand rose from the food service industry.

• Meat-centric diets – Diets like paleo and keto that emphasize high protein and meat consumption remain popular with consumers. People are willing to pay up for beef’s nutritional profile.

• Lack of substitution – For steak lovers, there’s no real substitute. High prices have led some consumers to swap ground beef for cheaper proteins like chicken or pork, but dedicated beef eaters keep paying premium prices.

• Income growth – Jobs and wages have recovered robustly from the pandemic recession. Rising incomes have given households more flexibility to absorb beef’s price inflation.

Until more consumers reach their breaking point and cut back, demand will keep supporting today’s elevated beef prices.

Droughts Adding to Beef Farmers’ Headaches

Making matters worse for cattle ranchers – and beef supplies – has been recurring drought conditions in many cattle producing areas. Severe drought has plagued states like California, the Southwest, Southern Plains and Western ranchlands.

Lack of rainfall has parched grazing lands and shriveled corn and hay crops used for cattle feed. The droughts have raised costs for ranchers in several ways:

• Reduced grazing capacity – Less grass and pastureland has forced ranchers to shrink herd sizes. Culling cows early also means less new calves.

• Higher feed costs – With feed crops diminished by drought, ranchers have had to import more expensive supplemental feeds. These input costs squeeze ranch profitability.

• Increased herd health costs – Stressed cattle require more medical interventions, and overgrazed land raises disease risks. Herd health costs per cow tend to rise during droughts.

• Less natural water – Dry conditions have dried up lakes, streams and ponds used by cattle for drinking water. Hauling or pumping water can become expensive for ranchers.

With climate forecasts showing potential for continued droughts, cattle farmers face higher operating costs that hamper their ability to expand production. Limited growth in the cattle herd translates into tighter beef supplies.

Grain Prices Adding to Beef Farmers’ Costs

Surging grain prices on top of drought conditions have created another cost headache for America’s cattle ranchers.

Grains like corn, soybeans and sorghum are essential components of cattle feed. But prices for these staple crops have skyrocketed in 2021:

• Corn prices are up over 30% from last year

• Soybeans have risen more than 60% year-over-year

With cattle feed costs escalating, it cuts into ranchers’ potential profits when they sell animals for slaughter. Corn and soy costs can account for over 50% of total cow expenses.

Some of the factors driving grain prices higher include:

• Bad weather hurting yields
• Increased biofuel demand
• Supply chain problems like trucking bottlenecks
• Weaker dollar making U.S. grains expensive globally
• Commodity investors pouring money into crops

Paying more to fatten up cattle squeezes margins for ranchers. Ultimately, those higher feed costs get passed along to consumers in the form of pricier beef.

Supply Chain Snarls Slowing Beef Production

Getting beef from pasture to platter involves complex supply chains spanning ranches, feedlots, slaughterhouses, processors and distributors. Unfortunately, COVID-related labor shortages and logistics bottlenecks have plagued many of these beef industry links.

Problems like worker absenteeism and shortage of truck drivers have reduced operating capacity all along the beef supply chain:

• Ranches are short of workers to care for cattle

• Feedlots and slaughterhouses have slowed operations due to lack of labor

• Meat processors have fewer employees available to cut and package beef

• Refrigerated trucks and trains face delays delivering beef to stores

These supply chain issues cause production backups and idle inventory build-up. Lower beef processing throughput has tightened the supply available to consumers. Experts don’t see the kinks working themselves out until 2022 or later.

Inflationary Pressures Across the Economy

The beef industry doesn’t exist in a vacuum. Cost increases that the entire U.S. economy is experiencing filter down to cattle ranchers as well.

Double digit inflation has marked 2021, with the highest Consumer Price Index in over 30 years. Many business expenses are rising, contributing to higher beef production costs:

• Fuel prices – diesel for ranch/truck operations up 50%+

• Labor costs – rising wages needed to attract workers

• Packaging – plastic, cardboard, labels have risen with oil prices

• Equipment – machinery, vehicles, tools all pricier

• Transport – freight and shipping rates up due to fuel costs and scarcity

Rising overhead from inflation compounds with specific beef industry factors to push retail beef prices up. With U.S. inflation projected to remain high in 2022, these inflationary pressures won’t relent anytime soon.

When Will Beef Prices Return to Normal?

The interplay between beef supply and demand will ultimately determine how quickly prices moderate. If ranchers can reverse the cattle herd attrition and expand numbers, that added supply will help stabilize prices over time.

But rebuilding the national cattle inventory takes years to play out. And it requires ranchers spending more to acquire cows when prices are lofty. So in the near term, relief on beef prices is unlikely without a notable dip in customer demand.

If the U.S. economy stumbles into recession, that could cool demand enough to loosen the beef price squeeze. However, income growth and low unemployment point to resilient consumer spending on beef in 2022. Barring a demand plunge, expect beef prices to remain well above pre-pandemic levels this year.

Tips for Saving Money on Beef

Until beef prices recede, consumers can employ some strategies to keep eating quality beef without breaking the bank:

• Try off-cut or lesser known beef cuts – they often cost much less per pound

• Buy larger quantities when beef goes on sale, then freeze portions for later use

• Swap in cheaper ground proteins like turkey or chicken when you can

• Use slow cookers and braising to turn cheaper beef cuts into melt-in-your-mouth dinners

• Buy grass-fed organic beef directly from local ranches – it’s fresher and supports local producers

With prices projected to remain elevated through 2022, consumers will keep seeking ways to adapt to beef’s new higher cost paradigm.

The Beef Price Outlook

Beef prices in 2021 completed a multi-year rise to unprecedented levels due to tightening cattle supplies, strong demand, droughts, higher feed costs and supply chain problems. With most of those factors persisting, prices will remain lofty in 2022.

Relief will have to come from expanded cattle herds easing tight inventories. But the process of growing America’s cattle population takes considerable time. Barring an unforeseen plunge in demand, expect beef prices to continue inflicting pain on grilling budgets for the foreseeable future. Consumers will keep adjusting their diets and practices to cope with beef’s new high cost reality.