Beef Prices Are Near Record Highs. What’s Going On?

Grill masters and taco Tuesday fans have had good reason to wince at the price of beef lately. Beef prices have been high for years but now they’re soaring, with average prices for two popular cuts sitting at record highs in April:

• Ground beef cost an average of $5.80 per pound. 

• Sirloin steak prices averaged $12.33 per pound.

The U.S. Bureau of Labor Statistics has tracked prices for ground beef and sirloin steak since the 1980s. That data shows prices for these two popular products remained fairly consistent until the first summer of the COVID-19 pandemic, when consumers spent more time cooking at home. Consumers have endured multiple record-setting price spikes in the years since.

Grocery price inflation overall seems to be steady, according to the latest consumer price index (CPI), which showed food prices were 2.8% higher in April compared to the previous year — a higher inflation rate than the CPI as a whole, which went up 2.3%. But beef and veal prices were 8.5% higher on average in April compared to the same time the previous year.

Looking ahead, high demand for beef combined with tighter supplies and tariffs that impact global supply chains could send prices to new heights.

» MORE: How much should you spend on groceries?

Why is beef so expensive?

Beef is so expensive right now because drought, high grain prices, inflation and rising interest rates made cattle farming a costly endeavor in recent years. To deal with rising operating costs, many U.S. cattle farmers reduced the size of their herds — and some got out of the business altogether. As a result, the U.S. cattle inventory is the smallest it’s been since 1951.

Smaller herds mean fewer cattle are available for beef. But consumers have maintained a healthy appetite for it, even amid rising prices. That combination of low supply and steady demand has pushed prices higher.

Now, tariffs add another layer to consumers’ price problem. The U.S. imports beef from a long list of countries, with most of it coming from Brazil, Australia, Canada, Mexico and New Zealand. Some of those imports now face a new 10% tariff. (Beef is exempt from the Mexico and Canada tariffs under the United States-Mexico-Canada Agreement.)

The cost of tariffs are typically passed through to consumers, so shoppers will likely see fresh price hikes soon, if they haven’t already.

When will beef prices go down?

Generally, beef prices could go down when the supply increases or demand decreases — or both. But demand remains strong and a variety of factors making life difficult for farmers have so far prevented them from taking steps to expand the U.S. beef inventory.

• Inflation drove up input costs, which haven’t receded, making it expensive all around to care for livestock.

• Drought conditions continue to impact pastures in cattle regions, which can force producers to spend more on feed.

• Record-high prices can be good for farmers selling cattle. But anyone looking to expand their herd is paying those same sums.

• High interest rates mean producers are paying more for operating loans, which many rely on to run their businesses.

All of that means it’s more expensive now to maintain a farm, let alone start or expand one — two avenues that would help increase the supply of beef and bring down prices at the store. With tariffs in place, the situation just got more complicated.

Beef prices seem poised to continue climbing, driven by a few factors.

Strong consumer demand

Signs indicate that demand for beef isn’t flagging, and it’ll likely pick up as warm weather invites more people to fire up a grill.

Demand typically peaks in the summer, contributing to higher prices through July, especially around the Fourth of July holiday, says Bernt Nelson, an economist with the American Farm Bureau Association. “The real question will be, are we seeing some exhaustion? Will these consumers start to change over to cheaper substitutes? There’s a lot of unknowns surrounding that.”

The situation with consumer demand could change quickly if consumers’ feelings about the economy continue to deteriorate and if signs of a recession worsen. If demand drops considerably, that’ll likely lead to lower prices. While that could be good for consumers who still want to buy beef, it’s not the kind of thing that’ll help the supply-side of the equation.

Tight beef supplies

The cattle supply is still getting smaller, and it’ll continue that direction until producers reverse course and expand their operations.

But that’s an expensive proposition. Many farmers reduced the size of their herds in recent years by sending female cows to slaughter instead of keeping them to breed more calves. So the cattle being sent to market aren’t being replaced back on farms and ranches. To ramp up the supply of beef, cattle producers first have to restart their breeding programs — which could mean buying cows at peak prices.

If they decide to do that, it’ll still take years for the expansion to impact the supply of beef at the consumer level. Even after a calf is born, it won’t be big enough to sell for beef until it’s roughly 18 months to 2 years old.

In the meantime, beef imports have been increasing to offset tight domestic supplies, Nelson says. The U.S. imports lean beef trimmings that are blended with fattier ground beef produced here. Foreign imports also give consumers options for lower grade cuts when they’re looking for a more economical option. But tariffs will impact those imports — more on that below.

Tariffs

Tariffs will have a definite impact on consumer prices that could last for years. The beef industry relies on both imports and exports, and it’s no simple task to find new markets and reroute global supply chains. Prices will rise in the short-term while producers decide how to adapt to the new conditions. And long-term, it’s unclear whether tariffs will leave producers better off or worse, which would have consequences for prices.

Tariffs on imports: Tariffs will increase the cost of imported beef, which will lead to higher prices paid by consumers, especially for products like ground beef. That’s because the U.S. primarily imports lean beef trimmings that get blended with beef sourced domestically. That’s largely due to taste: U.S. cattle producers raise fattier cows but consumers prefer leaner hamburgers.

Additionally, the Agriculture Department estimates tariffs will lead to less beef being imported this year than initially forecasted. Remember, beef imports increased in recent years because of tighter domestic supplies. So lower imports would exacerbate the situation here, with tightening supplies leading to higher prices.

Tariffs on exports: U.S. cattle producers export beef to a variety of countries, including China, and those exports are threatened by the ongoing trade war. That means beef exports will likely decline because importers in those countries won’t want to pay the steep tax that’s in place. In the worst-case scenario, beef producers could go out of business without those markets, and that would put even more strain on the domestic market.

That’s because producers are exporting beef that isn't in strong demand domestically. While Americans love burgers, consumers around the world prize high quality steaks or other cuts of beef that don’t have the same appeal here. Cattle producers can export those products and get a higher price than they would if they sold them domestically.

The guessing game: Right now, tariffs are an uncertainty. Their severity keeps changing and it’s unclear how long they might be in place. That makes them impossible to plan around. Given the high costs cattle producers face — and the years it takes for producers’ investments to pay off — it’s hard to know if or how cattle producers should adapt their business.

In one scenario, tariffs could change the math for U.S. ranchers. More demand for meat produced domestically would raise prices initially, which could encourage cattle farmers to expand or revamp production to serve domestic consumers. But they’d still have to overcome the current challenges, with high interest rates and high prices for new cattle making it particularly expensive to expand. And then they’d have to wait years for all their new calves to mature.

While the market waits years for the cattle inventory to grow, consumers could become so weary of high prices that demand weakens. If that happens, prices would go down, and the incentive for producers to expand would evaporate.