Shrinking cattle herds and disruptive weather mean beef could cost 3 to 4 percent more this year, according to estimates from the U.S. Department of Agriculture.
That’s on top of recent increases that have boosted prices about 10 percent. The price of ground beef hit $3.47 per pound in January, federal Bureau of Labor Statistics data show. That’s up from $3.41 in January 2013 and $3.01 two years ago.
Larry Nelson of Nelson’s Meats said he’s already had to raise beef prices at his Albuquerque meat shop by as much as 25 to 30 percent over the last year, and his profit margin is still down.
“People have started cutting back. I see it,” he said. “If they’re having a cookout, instead of buying four steaks, they might buy two steaks for two adults and hamburgers for the kids — or just hamburgers (all around).”
Multiple factors have converged to raise beef prices in recent years, says Jerry Hawkes, a range livestock economist and professor in the extension animal science and natural resources department at New Mexico State University.
The drought has contributed to a smaller cattle inventory. USDA figures show the country’s beef and dairy farmers held 87.7 million head of cattle to start this year, the lowest in 65 years.
At the same time, global interest in beef has increased. Even while Americans’ consumption of beef has dropped a bit, Hawkes said overall demand is outpacing supply.
“What we’re seeing is some growing economies across the globe. … When people have more money, one of the first things they always seek is a better source of protein, so we’re seeing a pretty strong demand for beef products globally,” he said.
Hawkes said New Mexico saw a “significant reduction” in its cattle numbers during the last few years of drought. New Mexico Beef Council Executive Director Dina Chacon-Reitzel said estimates have put the losses at 30 to 35 percent of the state’s mother cows during that spell.
Ranchers who couldn’t afford to feed the cattle were forced to sell off livestock they wouldn’t normally have unloaded.
“Fewer cows equate to fewer calves, and that’s what we typically consume,” Hawkes said.
The USDA is predicting that production in the $85 billion beef industry will drop to a 20-year low in 2014, Bloomberg News recently reported.
And the retail value of fresh beef is higher than any year on record, according to federal data.
Nelson, who has been in business for more than 40 years, said he has no immediate plans for another increase at his family-owned shop — “we don’t want to run the customers away” — but it may be inevitable.
“I told (my son and co-owner) hold them down until the very end. Everything we own is paid for,” said Nelson, who buys his beef from Texas. “We can afford to take a hit for a while, but if we have to it will probably come in June.”
Nelson said he’s already trying to diversify his business. Beef — which accounts for roughly 70 percent of his sales — may start losing display space to pork and chicken.
Grocers aren’t saying how things are likely to play out on their shelves.
A Smith’s spokeswoman told the Journal that beef price predictions are notoriously difficult to make.
“Beef prices can change dramatically either way (believe it or not we both raise and lower prices),” Marsha Gil-ford, Smith’s vice president of public affairs, said in an email. “There are so many factors that play into beef pricing — pricing of other commodities like chicken and pork, prices of feed, weather conditions, etc.
“Even our ‘experts’ are unwilling to make predictions on the long term future of beef prices.”
Despite the USDA forecasts, Chacon-Reitzel of the Beef Council said cost-conscious consumers will continue to have options because various beef cuts fall across a wide price spectrum.
“Fortunately, there’s a lot of choices in the beef case,” she said.
Restaurant patrons shouldn’t suffer too much sticker shock, though — at least not according to Bob Gontram, owner of New Mexico’s Five Star Burgers chain.
Five Star gets its beef from California, and Gontram estimates he will pay about 10 percent more for it come spring. But he expects things to quickly course correct, saying that if supermarkets raise their prices, consumer demand will fall and prices will go back down. He said that’s what he saw during a similar beef panic in 2012.
When calculating how much to raise Five Star’s menu prices to cover his costs, Gontram is looking up to a year down the road. Changes, he said, should be minor.
“I think we’re going to have to raise prices a quarter on two menu items in order to handle what I see the increase that’s going to be on average through 2014,” he said.
Currently, Five Star burgers generally run between $9 and $10.
Jim Schumacher, owner of the Cooperage steakhouse, said while the price of ground beef has become “a little bit ridiculous,” he’s not panicking because the cuts of meat he serves have remained relatively stable in price or, in some cases, fallen a bit.
“I’m not concerned,” he said. “I’m not planning on raising prices.”
A pound of USDA choice boneless sirloin steak cost $6.77 in January, down from $6.98 a year ago, BLS numbers show.