Take a bite of beef and chew on a little supply and demand.
Cooked down by three years of punishing drought, the U.S. cattle herd has dwindled to its lowest level since the 1950s, and that ongoing shrinkage has driven the average price of beef to a record $5.04 a pound, according to a the U.S. Department of Agriculture.
That’s a 6 percent increase from a year ago and comes after a 5 percent hike in 2012, said Kevin Good, an analyst at Denver-based Cattle Fax, which tracks the beef industry.
The spiraling beef prices are causing sticker shock at barbecue smokers across Texas, said John Sanford, owner of BBQ on the Brazos in Cresson.
“How much have prices gone up in a year? Try in a month — prime brisket had gone up 50 cents a pound since December. Beef prices are killing everybody, and I mean everybody, in the barbecue business,” said Sanford who smokes about 1,000 pounds of brisket a week.
“That’s $5 more for a 10-pound brisket. You do the math. I haven’t raised prices yet, but if it keeps going up, you are going to have to raise prices to cover the costs,” he said.
“It all boils down to when the drought started hitting those ranchers. The suppliers say it ain’t coming down until we get more cattle on the ground. It’s supply and demand,” Sanford said.
Filling the demand will be a years-long process, industry experts say.
“The cattle industry is truly in a free market where supply and demand rules,” said Eldon White of the Fort Worth-based Texas and Southwestern Cattle Raisers Association.
“Right now our supply is as low as it has been since the 1950s. The Jan. 1 inventory shows that the national herd and the Texas herd is shrinking further,” he said.
“That’s primarily driving the cost of beef right now,” said White, adding that as drought-ravaged range lands heal, inventory will gradually increase and eventually help ease beef prices.
But rebuilding herds will take time, and White said it will take two to three years for consumers to see that rebound reflected at grocery stores.
Good thinks the beef price increases are only going to accelerate this year.
“We’ll probably have a 6 to 8 percent price increase. The trend is probably the same for 2015,” he said.
“The public needs to recognize that this didn’t happen overnight. We’ve been liquidating the beef cow herd in the United States for 16 of the last 18 years. Numbers have declined over time,” Good said, adding that the Texas herd alone is down by 1 million head in the last three years.
Buying in bulk
The reduction is being felt at the Country Meat Market in Fort Worth, where per-pound prices are up 20 to 30 cents from a year ago, said manager Arnold Fernandez.
“A lot of people are buying in bulk to fill up their freezers because they know the price is going up,” he said.
The old-school butcher shop, which specializes in packages of beef sides and hindquarters, is having to hunt harder “to find a good deal” when it is buying cattle, Fernandez said.
“The carcass price has gone up 20 to 25 percent from last year. There’s not any good deals out there because the herds are so small.”
“Prime beef never goes down, it always goes up. Prime beef is only about 2 percent of the market, so there’s just not that much of it out there,” he said.
Good said some steak prices could go up $1 a pound and that will inevitably lead to trade-offs for beefeaters.
“Consumers will trade down from steak to ground product because of the price point. And some people will switch from a taco to a chicken sandwich,” he said.
There’s no chicken on the menu at BBQ on the Brazos, but that might change, Sanford said.
“I think beef prices will go up over 10 percent this year. We might have to do something.”