Why It’s Tough To Tame Beef-Flation

With PepsiCo saying its snack food price cuts would be close to 15%, the good news is cheaper Cheetos. Egg prices have also plunged.

But not beef:

“Beef-Flation”

We can go to Nebraka where cows outnumber people by a multiple of three.

For the year, beef prices are up a whopping 15%. Caused by “the perfect storm, ” ranchers are dealing with the cost of production, weather, disease, retirement, and the U.S. diet. They take us straight to supply and demand.

We can start with herds at 75-year lows. Covid helped to shrink the cattle supply as did a drought that made feed more expensive. In addition, ranchers are worried about a parasite called the world screw worm surfacing near the Texas border in northern Mexico. Then, compounding it all, a new generation has not replaced the older ranchers that are retiring.

The Response

Cautious about the future, some ranchers have said they are spending on repairs, reducing debt instead of adding to their herds, and buying the best breeding bulls. In addition, through the most advanced hay bailing equipment, they’ve lowered labor costs.

So yes, high prices typically elevate supply but for beef, it takes time. There could be four years between a cow’s 283-day pregnancy and then the wait for a heifer to mature.

Cattle numbers are down to 1951 levels:

Meanwhile, on the demand side, consumers have not been deterred by higher prices. Then, feeding demand further, the federal government placed beef atop a new food pyramid.

Our Bottom Line: Food Prices

Beef is not alone.

During December, food prices rose .7% from the previous month. Correspondingly, for the year, food prices were up 3.1% while grocery items cost us 2.4%. more. The increases were led by fruits, vegetables, cereal, and bakery products, and especially coffee.

And beef and veal, with a 15% annual increase.

FRED displays a food graph that steadily ascended:

My sources and more: With affordability in the headlines, a slew of recent articles have focused on food prices. The PepsiCo news was covered by WSJ as was their dive into beef and a Bloomberg “Big Take” podcast. Reading about breeding bull auctions was also interesting. And then finally, the NY Times had the big picture for food prices.