Beef Costs Are Rising as Bottlenecks Restrict Provide

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At Harris in San Francisco – a quintessentially American steakhouse with dark woods, cozy leather booths, and dry martinis – the popular 8-ounce two-sided filet mignon recently rose $ 2 to $ 56.

It’s even more expensive for the restaurant.

Chef and owner Michael Buhagiar said he is now paying 30 to 40 percent more for this steak than he was a year ago. Raising his prices only makes part of that difference, he said, “but we’re not trying to scare customers off.”

About 1,700 miles east, Brad Kooima scans the 3,000 cattle in his feedlot in Rock Valley, Iowa, on the South Dakota border. Nowadays he’s losing $ 84 a head.

“The frustration for producers like me is that the demand for beef at home and abroad has never been so good,” said Kooima, 63. “And we don’t make any money.”

In the post-pandemic world, the global supply chain is twisted and broken. As the demand for food, vehicles, clothing, and other goods has soared, manufacturers and suppliers are struggling to keep up with either being unable to source the raw materials or the labor needed to make automobiles, Ketchup packets and popular Starbucks beverages are needed.

In the U.S. beef industry, that chain is dominated by just four meat packers, and their profits are adding to tensions. While diners and grocery store shoppers experience sticker shock from soaring prices for ground beef and premium steaks, ranchers say they barely break even or, in some cases, lose money.

You point your finger at the Big Four companies that make up more than 80 percent of the processed beef sold in the United States: Cargill, JBS, Tyson Foods, and National Beef.

The Senate Committee on Agriculture, Food and Forestry will hold a hearing on Wednesday on transparency and pricing in the cattle market. The hearing follows numerous lawsuits filed in recent years by grocery chains, ranchers and others alleging that meat packers colluded to raise the price of beef by restricting supply. Some of the lawsuits have been dismissed, while others remain active. The industry rejects the allegations.

This spring, a bipartisan group of 19 senators called for the The Ministry of Justice is continuing its antitrust investigation against the meat packers. And in the past few weeks, Congress has tabled bills aimed at increasing transparency or competition in the cattle market. One of them would use a special investigator in the Department of Agriculture to investigate “anti-competitive activities by meat packers”.

“If things don’t change, our food chain will change very negatively,” said Senator Jon Tester, a Democrat from Montana. He warned that small and medium-sized feed farms were already being displaced and feared that cattle and calf breeders would soon be forced to do so too.

“The profits just don’t trickle down to them,” said Mr. Tester.

These are heady times for the beef packaging industry. Processors like JBS and Cargill make up to $ 1,000 in profit per cattle slaughtered and packaged into ground beef and steaks – well above the norm of $ 50 with occasional spikes of up to $ 150, according to analysts at RaboResearch .

The beef processors deny that they are manipulating the market, realizing the focus on four companies has existed for 25 years. In addition, none of the market players – the cow breeders, the feedlot operators or the meat packers – make a profit every year, said Sarah Little, a spokeswoman for the North American Meat Institute, the meat packers lobby group.

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June 23, 2021, 1:05 p.m. ET

And while the industry says it has long struggled to hire – an issue exacerbated by the pandemic – it is increasing capacities. In March, National Beef announced plans to expand the capacity of a processing facility in Tama, Iowa. And in early June, Brazil-based JBS announced it was spending more than $ 130 million to increase manufacturing capacity at two of its major beef processing plants in Nebraska and $ 150 million to raise wages.

“We believe our investments in increasing the capacity and offering industry-leading wages to attract workers will result in greater opportunities for producers and benefits for consumers,” a JBS spokesman said in an email.

But that capacity will do little to dampen rising packaged beef prices. Since mid-March – when restaurants reopened, global demand accelerated, and the barbecue season began – wholesale beef prices have risen more than 40 percent, with certain cuts of steak soaring more than 70 percent, according to the Department of Agriculture.

Grocery stores aware that consumers can easily grab a pack of chicken or pork instead have increased prices for ground beef by 5 percent and steaks by more than 9 percent year-on-year, according to NielsenIQ. Some restaurants, faced with a dilemma in certain parts of the country, raise prices slightly while others are removing beef from the menu.

Rising costs meant the Kansas City, Missouri Brookside Beef Company had to double the price of its 12-ounce Kansas City steak to $ 50. Instead, Charles d’Ablaing, the owner and chef, decided to take it off the menu. He occasionally serves beef at his main restaurant, the Brookside Poultry Company.

“Our restaurant concept is to be a place where a normal man can get a really good steak for a really good price,” said Mr d’Ablaing. “We’re not going to charge people $ 50 for a steak.”

The higher prices for rib eyes and strip steaks, however, have no impact on Brett DeBruycker, 50, a third generation farmer and rancher in Choteau, Mont.

Like other agricultural industries, livestock is often a festival or starvation business. A myriad of unpredictable factors affect it, such as weather patterns flooding one area and drought another; wide fluctuations in global demand; and spikes in the price of other commodities such as corn, which feeds cattle.

But Mr DeBruycker hasn’t made a dollar feeding cattle in four years, and he doesn’t think it’s a simple supply-demand imbalance. Cattle feeders typically buy cattle from ranchers when the animals are under a year old and feed them until they reach their slaughter weight of about 1,500 pounds. Then they sell them to the packaging factory.

“Sometimes I’ve lost $ 400 to $ 500 per capita, sometimes just $ 20 to $ 30 per capita,” said DeBruycker. “I understand capitalism and understand the agricultural markets well, but here the true supply-demand curve is broken because the middlemen, the meat packers, manipulate the supply.”

One result of the consolidation has been the closure of packaging plants across the country, reducing the number of cattle slaughtered each year. In 2007, an average of more than 527,000 oxen and heifers were slaughtered each week. In 2019, before the pandemic hit and disrupted operations, the weekly average was less than 500,000, according to a report by Derrell S. Peel, an agricultural economist at Oklahoma State University.

Some critics also say the Big Four are reducing competition in the cattle spot market in parts of the country by not buying at auctions or open negotiations, but through undisclosed agreements with large feedlot operators. Critics say the lack of competition in open markets has led to a lack of price transparency. The Senate proposed legislation would force meat processors to buy more cattle from live markets.

Another result of the consolidation was a sharp drop in slaughter when a single Big Four facility was shut down, even for a short time. In August 2019, a fire raged through a Tyson beef factory in Holcomb, Can., Which processed more than 6,000 cattle a day. It stayed closed for several months, severely limiting capacity in the United States.

In the spring of 2020, several meat packaging companies were suddenly closed due to coronavirus outbreaks among employees. These closings, combined with high demand from consumers rushing to fill pantries and refrigerators, sent processed beef prices soaring. But live cattle prices have plummeted as closures have left cattle back on slaughterhouses awaiting slaughter.

And earlier this month, all of JBS’s beef processing plants were shut down for more than a day after the company fell victim to a ransomware attack.

“It’s absolutely ridiculous that they don’t increase production,” said Corbitt Wall, a livestock market analyst at DV Auction and host of Feeder Flash, a daily Internet show that discusses the market. “They are simply disciplined suppliers of supply as they make more money with fewer people, while at the same time securing supplies and increasing consumer demand.”