Beef prices to fall as industry reshapes itself for the future

Editor's note: An earlier verison of this story contained an incorrect amount of overall pounds of beef produced in the U.S. in 2014.

Beef lovers, and that’s most of us, your time is coming.

The price of beef, which has been rising for decades, has peaked and is poised to come down. At least one forecaster foresees cheap beef for some years to come.

And with falling prices, many in the industry hope that Americans will eat beef as they used to.

Once king of the American dinner plate, beef was the food many dinners were based around, whether it was steaks or pot roast or hamburgers or casseroles.

In 1976, the Bicentennial year, Americans ate 94 pounds of beef per person and 39 pounds of chicken.

In 2014, they ate 54 pounds of beef per person – and 83 pounds of chicken.

But it’s about more than price. The industry is facing a new world and a new generation – one more concerned than ever about food safety, good health, variety and convenience.

The good news is that Americans by and large still love beef. They just don’t always choose to buy it.

Price has a lot to do with that. For the past few decades, beef has faced an increasing price disadvantage to poultry and, to a lesser extent, pork.

That price disadvantage widened to a chasm in the past five years. It’s kind of a shock to go in the store and see medium-grade hamburger for $4 a pound and KC strip steaks for $14 a pound.

The meat-packers, such as Wichita-based Cargill Beef, and the grocery stores hate it as much as the customers because they depend on volume to make their money.

Yoder Meats is just such a business. It processes and sells a variety of locally raised meats.

It has a main outlet in Yoder and three retail locations in Wichita that feel like an old-fashioned butcher shop, with a large counter full of beautifully presented cuts and a staff that can cut steaks to order.

Pat Hertel, who manages the store at 798 N. West St., said there’s no question the high price of beef has hurt demand, even in a specialty store where there are fewer price-driven buyers.

“Some of our older customers will come in and say, ‘I used to buy ground beef for $1 a pound,’” said Ashley Pena, of Yoder Meats.

“And now it’s $5 or $6,” Hertel said. “So they’ll grumble a bit.”

Falling prices

Glynn Tonsor is an associate professor of agricultural economics at Kansas State University who specializes in the livestock industry.

He doesn’t have a crystal ball, but he does look at a lot of statistics. And the statistics tell him that things are turning.

In the past five years, drought parched the southern Plains, driving up the cost of raising cattle. Ranchers sent more of their herds to the packing house. As cattle became rarer, the price rose – and rose and rose.

Cattle prices set records nearly every month for a few years. And the result is that beef prices set records, too.

With high prices and the return of rain, ranchers started holding back heifers and calves to rebuild their herds. It took a few years, but prices for cattle ready for slaughter peaked this summer. And some wholesale beef prices actually fell in the last few months.

“In 2016, there will be more pounds of beef for sale,” Tonsor said. “That will be pretty clear soon. At this point, the signals are still mixed, but we are at a turning point.”

And there will be a ready audience for that beef.

Tonsor publishes an index of demand for beef. While people are eating less beef because there is less beef to eat, people have been getting hungrier for it since 2011 when their incomes and employment started to rise again.

Because demand outstrips the current supply, Tonsor at first expects prices to fall only somewhat as more and more beef hits the meat counter. That’s good news for the industry and for consumers.

But Tonsor ultimately expects the the nation’s ranchers to overproduce and prices to fall sharply. He said that because of the lag time built into the cattle cycle, it will take five years before the industry again starts to shrink beef production and for prices to rise again.

Lower prices from overproduction will do wonders for beef lovers – and play havoc with ranchers’ economics – but Tonsor doesn’t think it will return per capita U.S. beef consumption to where it was in the 1970s.

“The cost of production of chicken and pork will remain a lot cheaper than beef, and in the absence of increased demand, it will remain lower,” he said.

Getting people to eat more beef

Cargill can read statistics, too.

Executives there have understood for a long time that baby boomers and their eating habits were getting older, and that Generation Xers and millennials have different tastes and expectations, as do the Japanese and Mexicans who also buy Cargill beef.

Just selling pot roast to middle America isn’t enough anymore.

That is why the company built an Innovation Center in downtown Wichita, where food scientists and technicians develop new products and processes. It contains test kitchens, mock-ups of retail locations, labs to test for food safety and nutrition and a full meat-processing area.

Tammy Shaw, Cargill’s vice president of Beef Sales and Marketing for North America, said that Cargill had studied consumer demand deeply and the good news is: People still like beef, a lot, but the company has to adapt with new products.

She said Gen Xers and millennials tend to have more sophisticated and varied tastes, are more willing to pay for convenience and tend to be less interested in – or capable of – cooking like their parents did.

Shaw said the company has worked with the U.S. Department of Agriculture to create a standardized Certificate of Tenderness.

“Consumers don’t always understand grades, but they do understand tenderness and juiciness,” she said.

Shaw ticked off a few innovative products the company has produced: seasoned and marinated steak for grilling; meal kits that include beef and vegetables ready for the oven; pre-made kabobs; bacon-wrapped filets; and even hamburger made from prime rib for “indulgent” high-end hamburgers.

McDonald’s recent limited-time sirloin hamburgers came from Cargill.

“It’s pretty exciting, actually,” said Cargill spokesman Mike Martin. “Based on the customer research, we are encouraged that consumers do want beef.

“There have been so many who have said that beef is fading away, losing popularity. It’s not; it’s just changing.”

The downside is that beef may no longer play the dominant role it once did. Instead of steak with a potato on the side, it might be a few chunks of beef in a stir fry.

“There is a consumer segment that loves beef,” Shaw said. “It is a huge part of their diet, and they will eat those larger steaks.

“The millennials and foodies of tomorrow will continue to eat beef, but on a little smaller scale, maybe as a smaller steak or as an ingredient in a larger dish.

“I guess, ultimately, if the difference is eating a kabob or a 16-ounce steak, that is fewer pounds … but we are trying to keep beef relevant.”

The future

Mike Miller, senior vice president for Global Marketing and Research at the National Cattlemen’s Beef Association, said he’s not worried about beef.

Demand in America for beef is strong and the coming fall in prices and rise in production will take care of recapturing total production, he said. The overall pounds of beef produced in the U.S. in 2014 was 24.3 billion, about 10 percent below the all-time peak set in 2002.

The drop-off in total production is far less than the fall in per capita consumption in the U.S. because of population growth and exports. Within a few years, he said, overall production will surpass that peak and set new ones.

“We produce more beef now than in 1990, and in 10 years we will produce more than we do now,” he said.

Per capita consumption in the U.S. may not reclaim what it was decades ago, he said, but the industry will continue to grow. Rather than fighting for U.S. market share with less-expensive alternatives, the industry is looking outside the United States for easier, more profitable growth.

Exports today make up about 10 percent of the U.S. production, but that is likely to grow.

Tonsor said the industry thinks it can sell high-quality, corn-fed American beef to the richest 1 to 5 percent of the population of the developing world, making U.S. beef a common luxury item around the globe.

“With the global consumer, the U.S. beef industry has really taken advantage of the developing world,” Miller said.

“Right now, we really don’t have a demand problem for U.S. beef at all. We are pretty proud of where we sit today.”

This story was originally published October 24, 2015 at 3:28 PM with the headline "Beef prices to fall as industry reshapes itself for the future."