David Anderson is a professor and extension economist with the Department of Agricultural Economics at Texas A&M University. He discusses what’s driving cattle and beef prices from feedlots in the Texas Panhandle to supermarkets at a time when the size of the overall U.S. herd is at a more-than-six-decade low.
Source: Dallas Fed Research
On the record: A conversation with Dr. David Anderson
Q. Texas is the biggest beef-producing state in the country. How have ranchers here been doing?
We’ve had some record-high calf prices lately—not only this year, but last year as well. We’ve also hit record-high fed-cattle prices. These prices come after a bunch of years of financial losses, particularly on the ranch side of things.
Prior to the recent price rises, we had a number of years of low prices, particularly relative to costs. Throughout the economy, costs have been [getting] higher. We see the same thing on the ranch, whether it’s fertilizer for pastures or fuel. That’s also on top of some years of drought that forced us to cut our herd sizes. And so, we have fewer animals to sell to take advantage of these higher prices.
Q. You mentioned cattle prices are high. What about beef prices?
We’ve had record-high beef prices for more than a year now, and we hit our all-time record last July [2023]. I’m using a data series from the Bureau of Labor Statistics. It’s [beef prices are] also reported by the USDA [United States Department of Agriculture], and it’s a monthly retail price at grocery stores. In this case, it’s choice beef—the USDA grade that you would see at the grocery store. This is the beef price that goes into the monthly Consumer Price Index.
Part of that [high beef prices] is [due to] higher costs throughout the economy. Getting from where the cattle are produced to where we buy beef at the grocery store, we can think of the costs [rising] along that chain. Just like everything else, we see higher costs for transportation, for keeping the lights on at the grocery store, the refrigerators running, the labor bill.
Prices are also higher because we’ve been decreasing beef production. Tighter supplies are feeding into higher prices. And a third part of higher prices is very good beef demand. Consumers appear to like beef, and so they’ve continued to buy it. Demand’s been very good, particularly in the area of higher-quality grades.
Q. Along the production cycle for cattle, from ranchers to consumers, are there any stages where just a few companies have a disproportionate market share?
We have forever dealt with concentration in this industry. We have an industry that is sort of hourglass shaped. We have a lot of cow calf producers, we have fewer feedlots, we have relatively fewer meat-packers. Then, you can think about that hourglass expanding when you get into grocery stores and restaurant chains.
People in the industry are often concerned about market power or the potential for monopoly power, particularly on the meat-packer side. We can go back to the Packers and Stockyards Act, passed in 1921, that dealt with market power in meatpacking and largely the cattle industry.
Q. You mentioned that beef production is declining. Why is that?
It’s really on the supply side, and we can think of the supply side being driven by production costs and drought. In Texas, we have the most cows by far of any state. We’ve got the most cattle on feed of any state by far. A decade ago, we had record-high beef prices following 2011, Texas’ driest year on record. That severe drought drove down the number of cows.
If it doesn’t rain and there’s no grass, there’s nothing for the cows to eat. It’s really expensive to buy feed. Production just becomes cost prohibitive, and we start selling off our herds because there’s just not the grass for them.
In fact, we have the fewest beef cows in the U.S. since 1961, and the fewest total cattle since 1951. The other part of that is about economics. We expanded our herds following the last drought because we had record-high prices. Markets work. High prices seem to expand production. And we did that [expand herds], which drove prices down.
Then, we had financial losses and bad economic conditions starting at the ranch, which along with drought, led us to start cutting our herds. That’s the bigger picture. We struggled with drought, and we struggled with financial losses.
Q. It seems like the wildfires that we saw in the Texas Panhandle this spring dealt a blow to the cattle supply in Texas. How great were the losses?
We’ve all seen the pictures, and it’s devastating. It’s [especially] devastating if it hits your ranch.
As big as those fires were in terms of total cattle numbers, they were relatively small in the big picture. Our estimate of the economic loss from the drought is about 15,000 head.
We have 4.1 million beef cows in the state, and so the effects are what you might consider a local disaster. In the overall cattle market and in beef prices to consumers, there’s really no effects that we would see.
Q. What is your outlook for U.S. cattle supply?
The cattle industry is very cyclical. We tend to characterize it as being 10 years long, although we’ve had shorter and longer cycles. And by cycle, we measure from one [market] bottom to the next bottom.
Our cow numbers are declining. We’ve been cutting the size of our herd, and so, when we have fewer cows and fewer calves, we get less beef production. We’re looking at less beef production than in 2023, and 2023 was lower than 2022, which was the record-largest beef production [year] in the U.S.
A lot of that was because we were forced to cull a lot of cows from our herd, and so they went to a meat-packer. That boosts beef production at the expense of the future. So, we’re ready for less beef production each year over the next several years, which gets us to this idea of a cycle and how fast could we respond to record-high calf prices.
We’ve got to get a market signal to want to expand. But then, we also need rainfall and pastures and grass for the cattle to eat. Let’s say those factors come into play, and a rancher wants to expand their herd, they are going to do that by keeping some of their female calves that are born this spring, so that they’re going to start having calves in the future.
“Throughout the economy, costs have been [getting] higher. We see the same thing on the ranch, whether it’s fertilizer for pastures or fuel. That’s also on top of some years of drought that forced us to cut our herd sizes. And so, we have fewer animals to sell to take advantage of these higher prices.”
For a calf born this spring, we might consider that they’re going to have their first calf when they are two years old. That gets us to the spring of 2026. And then her first calf—let’s say it goes to a feedlot and then a meat-packer—is not going to reach its full-grown weight for another roughly 18 months. So, it’s almost a four-year period to start seeing beef production increase from the market signals we have today.
You can think of a cow as an investment. We have a present value of future returns from her offspring over her life.
Q. Are the recurring droughts that we see in Texas changing anything about how the industry goes about its business?
Drought means we have fewer cows. In recurring droughts, our ability to expand and to have more cows is affected.
Droughts have long-term effects in terms of the time required for pastures to fully recover. These drought conditions have long-term effects on our ability to have as many cows as we used to have.
I commented that we have the smallest cow herd since 1961 in the U.S. Part of the reason is that cows are bigger today than they used to be. We’ve seen real big increases over time in terms of beef production per cow. So, while we have fewer cows, those cows produce more beef. [That] is a big offsetting part to having fewer cows.
Q. How does this all make us think about the food supply long term?
Shortage is not something I worry about. We don’t have a shortage. What we do have is a market at work where, from these biology and economic signals, when we produce less, the price goes up. Price rations the market. Higher prices reflect the demand for beef and tighter supply.
We import beef into the U.S. We also export beef. We’ve been exporting roughly 10–11 percent of our beef production. When we think about beef, or any meat, there are different cuts. We have all the way from steaks—high-value things—to low-value cuts. We tend to export high-value products. We also tend to export low-value beef products.
We can think about something like liver, for instance. We just don’t eat much beef liver anymore. And so we export a lot of that, and we get more value by exporting it than what we could selling it domestically.
On the import side, something like 70 percent of what we import is really lean beef trimmings to go into ground beef. We all like a hamburger.
As our cow herd has gotten smaller, we produce less of that lean beef to go into ground beef; so, we import more of it.
