Here's the Beef: U.S. Cattle Prices Are Rising With the Economy

It's been quite a spring for Bill Gray. The former president of the Colorado Cattlemen's Association has been watching the price of beef rise throughout the winter, monitoring the changing prices, sometimes by the hour, on his computer in Ordway, near Pueblo.

In August he sold 600-pound steer calves for November delivery at $1 a pound. But last week, comparable-size winter steers in his part of southern Colorado sold at $1.28 a pound. You'd think he'd be pleased to see such a sharp price increase for his product.

"I would be very happy if it just stayed where it is," says Gray of the price of beef. "We've had such an upswing in the market since the first of the year. It's going to have to stop and take a breath."

Cut in Supply Followed Lower Demand

The rising price of U.S.-produced meat comes after a long downward slide and has been prompted in part by a classic case of supply and demand. Over the past several years, as the recession expanded, budget-conscious consumers cut their meat intake -- and meat producers reduced their herds and flocks. Last year, according to Bill Gray, U.S. cattle inventory decreased by 820,000 head, including dairy cattle.

A long-term drought in U.S. cattle country also disrupted the cycle of raising beef cattle to slaughter weight. The USDA reports that commercial red meat production from January to March was down 2% this year compared with the same period in 2009, and global beef production was also forecast to decline slightly in 2010.

Americans may be ready to consume more meat as the economy revives, but along with lower inventories they are also faced with growing international demand. According to the U.S. Meat Export Federation (USMEF), American beef exports rose by 14.5% in February from a year earlier, while pork exports rose 2.6%.

"Our export market is improving," says Bill Gray "It could have been the cattle...have been undervalued and now they're catching up."

Exports to Increase 10% This Year

And Cattlenetwork.com says the U.S. is expected to export 2.05 billion pounds of beef this year, an increase of nearly 10% from 2009, helped by "tightened supplies among some of the major beef-exporting countries... and the relatively weakened U.S. dollar."

"As consumers have more money for discretionary spending, they are more likely to add protein -- or higher-priced protein -- into their diets," says Jim Herlihy, USMEF's vice president of communications. "As the economy slumped, we saw consumers both here and abroad 'trade down' to less expensive cuts or less expensive proteins. As conditions improve, that trend should continue to reverse."

Herlihy notes that certain meat products are always in high demand. "For example, beef short ribs are very popular in Asia," he says, noting that prices for short ribs have doubled in the past 18 months to about $3 a pound.

High Prices to Continue

Meat producers also have to pay more to increase livestock as demand grows, especially as American markets gear up for the summer outdoor grilling season.

For the average consumer, "it's going to mean the prices are going to stay high and probably go higher," according to Dr. Ron Rizzuto, professor of finance at the University of Denver's Daniels School of Business. "The supply doesn't adjust quickly in the short run. Until the ranchers increase the herds, that's a longer cycle than next month."

Dr. Rizzuto believes meat prices will moderate in the long run.

"It will be 12 to 18 months out before we start to see more of a balance between supply and demand," he says. "The only qualification to that is if the economy stumbles again and demand drops, then you'll see prices moderate or go down."