Dive Brief:
- Depleted cattle herds have pushed up beef prices, eating into meatpacker profits as they struggle to fully pass along the costs to inflation-wary consumers.
- Prices for fed cattle, or cows that are large enough to be slaughtered and put in the market, reached a record for the week ending June 4, according to a USDA report Thursday. Meanwhile, prices for younger, feeder cattle at the Oklahoma City National Stockyards were up nearly $52 in May compared to a year ago.
- Cattle stocks have remained low due to persistent drought conditions across the U.S., pushing up consumer prices close to the record set during the pandemic, per data from the Bureau of Labor Statistics.
Consumer beef prices near pandemic record
Dive Insight:
Higher cattle costs come ahead of grilling season, which could increase consumer prices even further. But despite the elevated prices, companies are still absorbing a significant portion of the production costs.
Tyson Foods reported a 8.3% decline in beef sales compared to a record set in the second quarter of last year. Prices dropped 5.4% on lower domestic and export demand, while live cattle costs increased approximately $305 million on a like-for-like volume.
“The reduction in the beef cattle herd continues to tighten supply and increase competition for cattle,” CFO John Tyson said on an earnings call May 8.
High cattle prices additionally pressured revenue at JBS' U.S. unit, with CEO Gilberto Tomazoni noting in a May 12 earnings call that "commercial and industrial performance fell below our expectation."
Around 40% of the U.S. beef herd still remained under drought conditions as of the week of June 6, according to the USDA. However, recent rainfall and lower feed prices have allowed production to increase at a faster-than-expected rate.
The USDA raised its beef production outlook in June, although production is still expected to decline more than 8% in 2024. Packing plants will need to compete for a smaller supply of slaughter-ready cattle to fill their schedules, the agency said.
Tyson President and CEO Donnie King said in the company’s earnings call that cattle supply is still not in a "rebuild phase," noting that many ranchers are choosing not to expand their herds and to instead sell young, female cows before they've been bred.
"More retention is needed on the heifers before we're ready to signal that the rebuild has begun," King said.
