Just nowShareSaveAdd as preferred on GoogleSam FenwickBusiness reporter, BBC News
AFP via Getty ImagesWith US beef prices soaring to record highs, you might think that South Dakota cattle rancher Eric Gropper would be celebrating.
Yet while the cost of the meat in US supermarkets is now 12% higher than it was a year ago, a rise more than three times the rate of general inflation, Gropper says that he and all the other beef farmers aren’t making any more profit than usual.
The BBC World Service’s Follow the Money series spent a week tracing the American beef supply chain to find out what has caused the price jump and discover where all the cash is going.
Eric GropperEric Gropper has about 350 breeding cows on around 8,000 acres of grassland in south-west South Dakota. Most of it he leases from the Pine Ridge Indian Reservation.
He is seven miles from the nearest paved road, and two and a half hours’ drive from the closest town of any size.
Gropper doesn’t set the price for his calves. Instead once a year he takes them to a livestock auction where buyers place bids and the hammer decides.
Right now the bids are the highest he has ever seen – around $2,500 (£1,883) for a 600lb (272kg) calf, up from $2,000 two years ago.
These record prices are driven by a simple fact – there are not enough cattle. Due to a combination of drought in many states, and disease pressure, at the start of this year the US had fewer cattle than at any point since 1951.
Gropper is experiencing drought first hand, as the 13 natural wells across his land that provide ground water for his cattle have run dry. He has to use a water tanker instead.
Eric GropperDue to the national shortage of cattle, Gropper is getting record prices for his. But unfortunately his costs have equally climbed to new highs.
A new pick-up truck that once cost $40,000 now runs to $100,000. A wooden fence post has gone from about $6 to as much as $19. A quarter-mile roll of barbed wire has doubled, from $60 to $130. Everything he uses day to day, he says, has jumped in price since the Covid pandemic.
And with little grass on parched fields – well over 60% of US cattle are now grazing on drought-hit land – farms like his are having to buy in hay, silage and other fodder for their cattle.
“I’m able to pay my bills, but my input costs are so drastically high that if we didn’t have these record prices we’d all be broke. I sit down to do my taxes, and it feels like I made a lot of money. But in the end I really didn’t make any more.”
AFP via Getty ImagesGropper’s calves don’t go straight to slaughter. At around six-months-old they are bought by companies that run feedlots – large yards where the animals are fattened on corn and other grains for the final three to six months of their lives.
The biggest yards hold well over 100,000 cattle at a time. Around 95% of US cattle are finished this way.
Brenda Boetel, professor of agricultural economics at the University of Wisconsin–River Falls, watches this part of the chain closely.
She says that while the feedlot companies are currently selling cattle at record prices, they are having to buy them at all-time highs in the first place. So they are not making bigger profits.
AFP via Getty ImagesA meatpacker is the plant that slaughters the animal and breaks the carcass down into the cuts that reach shops or restaurants.
Four companies – Tyson, JBS, Cargill and National Beef – control around 85% of American beef processing.
That high level of market concentration has drawn accusations of price-fixing, even from President Trump.
So you might expect that those four firms are currently making huge profits from high beef prices. Yet the opposite is happening.
Tyson, the biggest of the four, reported in May that it had lost more than $500m on beef in the first half of its financial year.
Again, it might be selling its beef for record highs, but it is also buying the cattle at all-time peaks.
Jamie Crumley owns one of the remaining smaller meatpackers – Harpley’s Meatpacking in central North Carolina. She says the price companies like hers have to pay for the live animals has gone up by as much as 60% over the past three years.
And while meatpacking companies have increased the prices they charge for their beef, there is a limit. This is because supermarkets, restaurants – and US consumers – can, and will, simply switch to buying chicken or cheaper imported beef instead.
Then there is the inefficiency of running the meatpacking plants at much less than full capacity. For example, Harpley’s is built to handle 425 to 450 cattle a day. But it is currently running at just 350 because it cannot get the additional animals.
The building, the line and the staff cost the same either way, so those fixed costs now spread across fewer animals. On any given day Crumley says she can lose anywhere from $100 to $400 on a single head of cattle. This helps to explain Tyson’s giant losses.
AFP via Getty ImagesAt the end of one beef supply chain is Paul and Jessica Urban, who own Block 16, a burger restaurant in Omaha, Nebraska. They go through about 300lb (136kg) of ground beef a week, making 2,800 burgers a month.
When Block 16 opened back in 2010, a burger cost $8.95. Today it’s $11.95, but profits are limited due to the much higher price of mince.
“To maximise our profit, maybe we’d have to charge $13 for a burger,” says Paul. “Well, we don’t feel comfortable doing that. I wouldn’t want to walk in here and have to pay $13 for a cheeseburger.
“So we don’t make the profit that we’d like — but you’re still getting people through the door, and it’s not always about the money.”
The rancher is selling calves for record sums, but is not better off because he has higher costs. The feedlot company is selling for all-time high prices, but it also has to pay them in the first place.
Then the packers are losing money because there is a limit to what they can charge. Restaurants and supermarkets also can only increase prices by so much.
Everyone is turning over more money than they used to, but not keeping any of the extra. It’s a situation that won’t change until significantly more US cattle come to market.
Yet as Eric Gropper puts it, you can’t conjure a cow overnight. Instead a heifer, a young female cow, needs two years before she is able to produce a calf. And that calf needs another year to reach slaughter weight, so the extra beef takes three years to arrive.
US economyInflationMeatIntensive farmingInternational BusinessSouth Dakota
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