Drought and high feed costs have driven ranchers to send cattle to slaughter instead of keeping them for breeding, Reuters reports, shrinking the U.S. beef herd to its smallest size since 1962. As a result, meatpackers are paying considerably more for the cows they turn into meat, which cuts into their profits.
Analysts told Reuters that “[t]he amount of money meatpackers earn buying cattle and converting them into meat fell below $40 per head of cattle in April, after topping $700 per head in May 2020 … On Wednesday, the margins were about $117 per head.”
“Packers are scrambling,” Derrell Peel, an Oklahoma State University agricultural economist, told Reuters.
“They will likely try to pass on costs to customers, charging more for ground beef and steaks at a time of high inflation, analysts said, but it is still a question whether higher beef prices will ruin consumers’ appetites.”
This comes on the heels of bad profit news for packers earlier this year, due to falling consumer demand and higher prices on everything from transportation to plant worker wages.
“This is the first time I’ve seen all markets work against us all at the same time,” Tyson Chief Executive Donnie King told analysts in February, after the company reported a 72 percent decline in quarterly profits, its biggest percentage drop in quarterly profit in over a decade.
Meanwhile, the Biden administration continues to pump money into boosting the ability of smaller ranchers to compete with the packing giants by building local and regional processing infrastructure.
Announced in 2021, the $1 billion Meat and Poultry Processing Expansion Program has doled out $159 million in grants thus far to strengthen the food supply chain and introduce more competition into the meat processing sector.
Cattle, hog and poultry processing is highly concentrated, with four companies controlling 85 percent of cattle slaughter and more than half of poultry processing.
The USDA says MPPEP is intended to “encourage competition and sustainable growth in the U.S. meat processing sector, and to help improve supply chain resiliency.”