Beef Prices Now 30% Up Year on Year

Spend Matters welcomes this guest article by Mark Kozlowski of Mintec. 

In January we wrote about the rise in beef prices due to the extreme cold weather at the time. Although a short-lived spike, it foreshadowed the trend beef prices were to take for the rest of the year. Nearly a year on, they have continued to rise and are currently almost 30% higher year-on-year.

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The US is a massive consumer of beef. In fact, the US appetite for beef is so large that it is not even stated by its own domestic production, the largest in the world. The world’s largest beef imports are also needed to satisfy demand. Approximately 11.4m tonnes of beef are eaten in the US each year, 20% of the global total and 3.5m tonnes higher than the world’s next largest consumer, Brazil. Even so, beef consumption in the US has been falling since 2012, with further falls expected in 2015.

The reason for the reduction in consumption is simple. There have been low levels of supplies in the US. Production in the US has fallen by 13% from the record levels seen in 2006 and is forecast to fall more in 2015, down to levels not seen since the early ‘80s. This drop in production has come as a result of drought across the major producing states, leading to herd culling and sharp declines in the size of the US cattle herd.

This has led to prices rocketing to record levels, leading to a fall in consumer demand for beef in the US. That in itself is usually enough to stem the tide of rising prices, however there are other factors in play.

As a result of the falling domestic production, beef imports into the US have increased significantly in 2014, up 23% in the first 9 months of the year. The majority of this increase has come from Australia, with US imports from Australia up almost 60% over the same period. Now, Australian beef accounts for over a third of total US beef imports.

But drought has hung its Sword of Damocles over Australia as well. Australian beef production in 2014 increased 6% y-o-y to reach a record level. However, just like in the US, drought has led to Australian producers culling herds, the result of which is higher beef production. Again, just like the US, it means reduced production for the following year. Therefore Australian beef production is set to drop in 2015. The tighter availability in Australia will cause exports to drop off. At the same time, China has been taking an increasing share of Australia’s beef exports, which has led to higher competition and Australian beef prices to increase.

So there seems to be no respite for beef prices in the US, and we expect them to continue to increase in 2015 due to tight supplies and high global demand. These continuing high prices could lead consumers to re-evaluate their shopping habits and look to other forms of protein as alternatives, which could limit the size of the price rises.

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