Ag Minute: Where's the Beef Coming From?
Anyone who has bought a pound of hamburger this summer knows that beef is not cheap. Ground beef averaged $6.92 per pound in August, up from $6.32 a year earlier. With all beef prices continuing to climb, the federal government is looking for ways to put more beef on the market and, hopefully, bring prices back down for consumers.
The problem is that there simply are not as many cattle in the country as there used to be. USDA counted 86.2 million cattle on January 1, the smallest U.S. herd since 1951. The University of Illinois has also pointed to 2019 as the beginning of a seven-year decline in the national cattle inventory. Drought forced many ranchers to sell cows they could not afford to feed, while disruptions in the Mexican cattle trade have limited another important source of cattle for U.S. feedlots. Record calf prices have also encouraged some producers to sell young heifers rather than keep them to rebuild their herds.
All of this creates a difficult situation. Packing plants cannot keep shackles filled, hurting the economies of scale required to keep fixed costs down, leading to negative returns for all of the beef processors. Tyson is even closing plants because of it, including one in Joslin, IL near Moline. The cattle market is cyclical, but we are in the depths of trying times both for grocery store prices of beef and those packaging the beef we consume. The only way we’ll be able to get out of this will be with a strong rebuild of the national herd, which could be a major feat.
That is where beef trimmings enter the conversation.
A steak and a hamburger do not come from the same type of beef. U.S. fed cattle produce the well-marbled beef that consumers expect from steaks and roasts, but that process also creates fatty trimmings. Ground beef needs leaner beef to reach the 80 or 90 percent lean ratios found in the grocery store. Much of that lean beef traditionally comes from older cows, including cull beef and dairy cows.
But producers are now holding onto more cows as they work to rebuild their herds. That means fewer cull cows are reaching packing plants, creating a shortage of the lean beef needed for ground beef. Processors can make up some of that difference by importing lean beef trimmings, primarily from countries such as Brazil, Argentina, and Australia, and blending them with domestic beef.
On August 26, the President signed a proclamation allowing an additional 300,000 metric tons of lean beef trimmings to enter the United States at a reduced tariff. The goal is straightforward: increase the supply of beef available for ground beef and put downward pressure on ground beef prices.
For consumers, that sounds like a simple solution, but for cattle producers, it is not quite so simple.
Cattle producers have argued that imported lean beef competes directly with the domestic cows that provide much of the same product. If packers can buy imported lean beef more cheaply, the value of domestic cull cows could fall. That matters to cow-calf producers because the price they receive for those older cows is part of the economics of rebuilding a herd, although it does incentivize holding onto cows longer as they lose value.
The other side of the argument is that the United States has a beef supply problem today, and consumers are paying for it. Imported lean beef can help fill a specific gap in the market while American producers rebuild the cattle herd. Additionally, it isn’t meant to compete with the high-quality meat coming from heifers and steers nationwide. The question is whether that additional supply will be large enough to make a meaningful difference at the grocery store.
Purdue agricultural economists estimate that the additional 300,000 metric tons would represent about 6.8 percent of one year's ground beef supply. However, because some of that beef would have been imported regardless, they estimate the effect on retail ground beef prices would be less than 1 percent. In other words, more imported lean beef may help, but it is unlikely to suddenly make hamburger cheap again.
The debate has also moved beyond imports. On September 4, the administration announced additional actions aimed at addressing concerns from American cattle producers, including changes involving direct-to-consumer meat sales, enforcement of the Packers and Stockyards Act, and a review of country-of-origin labeling. Those changes have received a more positive response from some ranchers, although there are still questions about how permanent those changes will be.
That leaves the beef industry with a difficult balancing act. Consumers want affordable beef, while cattle producers need a strong enough market to justify rebuilding a herd that has reached historic lows. Imported beef may provide some short-term relief for the consumer, but rebuilding the American cattle herd will still take years.
For Illinois cattlemen, that may be the most important part of this entire debate. The price of hamburger at the grocery store is a problem that can be addressed in months. Rebuilding the cows behind that hamburger is a process that takes years.
For more information on the White House proclamation, follow the link below;
For more information on the size of the U.S. cattle herd, follow the link below;
For more information on the concerns raised by cattle producers, follow the link below;
For more information on the executive orders that followed, follow the link below;
For more information on the likely impact to ground beef prices, follow the link below;
